Crowdfunding Basics for Backers

IMG_0878 Crowdfunding - seeking funds for a project from a bunch of strangers online - has become big business, with ever greater amounts of money going to fund the next big idea. Backing a crowdfunding project can be a fun way to get early access to a new product or just to help out a person or concept you believe in. But finding the right crowdfunding campaign to put your money and enthusiasm into isn't always easy. This week, we're looking at crowdfunding from the perspective of a backer: where to find new campaigns, what to look for, and what to avoid.

The basic concept of crowdfunding is simple. The campaign's creator needs money for a specific goal, like publishing a new comic, manufacturing a toy, shooting a web series, producing a podcast, or covering medical expenses. To raise funds, they start a crowdfunding campaign, which explains what the money raised will be used for. People who are on board with the idea give contributions in whatever amounts they wish. The project backers aren't investors, as they don't share in any profits from the project or own stake in it. They contribute in exchange for backer rewards or just because they want to see the project happen.

There are many sites that host crowdfunding campaigns. Here are some of the biggest:

Kickstarter and IndieGoGo are among the major crowdfunding platforms. The way they operate is what most people think of as crowdfunding: projects with a clearly defined purpose - like publishing a comic, putting on a play, shooting a film, or what have you - and a funding goal. There are usually rewards for the backers, such as early or discounted copies of the product, t-shirts, special events, and various other goodies and experiences. Most campaigns have a set funding goal, though IndieGoGo has a flexible funding option where creators can keep whatever amount is pledged. Kickstarter processes backer pledges when the campaign ends, while IndieGoGo charges the account as soon as the pledge is made.

Patreon is usually less about a project with a clear end goal and more about sustaining a long-term work or a creator over time. As a patron, you pledge a monthly amount to support a person or project. Patreon funding can go to websites with regularly updated content, podcasts, webcomics, or a creator whose work you enjoy, among other things. Not all Patreon projects have rewards, but common ones include early access to the work, print copies, and peeks behind the scenes. Patreon can be set up by the project creator to charge patrons monthly or as new projects are completed

GoFundMe is a crowdfunding site for individuals and charities. Instead of funding a creative endeavor, you're helping out someone with a difficult expense or contributing to a cause that matters to you. Rewards are much less common in these campaigns, though you may get your name listed somewhere as a donor or a small gift in recognition of your contribution.

As with any situation where money is changing hands, there is potential for fraud with crowdfunding. Crowdfunding platforms make no guarantees about the success of the projects that you fund or the delivery of the rewards you were promised. Cases of outright fraud, where the campaign creators never intended to do anything but take off with the money, have happened. More commonly, creators get in over their heads. Unexpected delays and problems can pop up, due to a more difficult than anticipated project or unrelated life issues. Delays are very common, so don't depend on a reward showing up in time for somebody's birthday. An honest creator who wasn't able to deliver the product will usually try to give refunds. But sometimes, the money is spent and the product still doesn't happen. Between that and the few people who are really trying to scam you, you should not contribute to a crowdfunding project if you can't afford to lose the money.

Now that you know the basics of crowdfunding, how do you tell if a project is worthy of your contribution? While crowdfunding always involves some risk, there are things you can look for in a campaign to determine whether you should be backing it.

Description - Before anything else, you'll want to know exactly what you're backing. In some cases, this is obvious, but others may be less straightforward. Creators may be asking for the money to create a pitch or prototype that will then be shopped around to studios or companies for potential production. This isn't a scam, so long as it's clear that you're funding a preliminary stage and not the full production. But it does mean that the campaign could meet its funding goal and you could still never see the finished movie, comic, game, or what have you. Make sure you read the description carefully and understand what the status and availability of the product will be if the money is raised.

Experience - Many creators who turn to crowdfunding for cash are doing something new, but that doesn't mean they should be starting from square one. You want to see some evidence that the creators have already put in some time and work and aren't drawing, sculpting, writing, filming, or creating a recipe for the first time. In most cases, what you're helping the creators to do is get their project out into the world on a larger scale. Look for bios that point to a history with this kind of project, pictures of previous works, or links to portfolio sites. A few quick Google searches could unearth stolen images or creators with a history of unfulfilled crowdfunding campaigns, saving you a lot of headaches down the road.

Progress - You want to have some idea of what you're funding, so the project should be more than just a vague concept. A good crowdfunding project will have a prototype, art samples, a story outline, something that tells you the end product is underway and ready for the step that you're going to help fund.

Reasonable Rewards - Crowdfunding projects frequently offer rewards to their backers. The more money you contribute, the better the rewards. Great rewards can make a campaign more appealing to potential backers, but you want to watch out for campaigns that might be promising more than they can reasonably deliver. How many of the rewards are directly related to the end product, like a DVD of the film you're funding, a bag of the cookies, or a copy of the comic? How many are more like side projects? A few t-shirts, prints, and buttons probably won't eat up much of the creators' time and money, but lots of rewards that require extra work can start to add up. Make sure the project isn't promising more than it can reasonably deliver for the time and money they have budgeted.

Funding - A well thought out project should account for three main factors when calculating the total amount of money they need: the actual cost of the project, the cost to fulfill all of the backer rewards, and the fees charged by the site. A lower than expected initial goal may not be a red flag on its own. Some creators only crowdsource part of their funding. But if you suspect that the creators are greatly underestimating how much money they'll need or asking for way too much, you may want to reconsider backing the project.

Despite the risks, crowdfunding remains popular. It's a great way to get an idea funded directly by the people who want to see it happen and for backer to help these projects become a reality. With just a little forethought and research, you can happily back campaigns that you're excited about.