Repost from IBM Social Business Insights: Crowdfunding: Fundraising with a Social Twist

Earlier this year I started blogging for the IBM Social Business Insights blog as part of a team of IBM Redbook Thought Leaders. I'll be reposting those blog posts here on my personal blog. Crowdfunding: Harnessing the power of social networking to raise money (Part 1 of 3)  was originally published on June 12, 2012, and is owned by IBM.
I recommend checking out the IBM Social Business Insights blog for some compelling and though-provoking content. 

Crowdfunding: Harnessing the power of social networking to raise money (Part 1 of 3)

By Holly Nielsen, Social Media Manager and Webmaster, Human Ability and Accessibility

I’m fascinated with the power and reach of social networking. Every day I find something new – another clever idea of capitalizing on the power of all of these connected people who are online daily making new connections, sharing content, collaborating… It truly is a new world of interacting with others, and in many ways makes our huge world of seven billion residents feel a little smaller and much friendlier.

One of the social networking areas that’s captured my attention recently is crowdfunding, an offshoot of crowdsourcing. Oxford Dictionaries even has an official definition of crowdfunding:

The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

Crowdfunding is being used successfully by many types of people and groups for a broad range of projects and causes including creative projects, entrepreneurial products or technologies, artists, bands, or independent filmmakers seeking support, humanitarian aid, political campaigns, charities, and microlending.

Crowdfunding creative projects

I’m fascinated with three-year old Kickstarter – a platform that enables potential entrepreneurs with a creative idea to float the idea within the Kickstarter community to see if the people like the idea enough to fund it; lowering the barrier to entry dramatically. When you think about it, what an inexpensive (as in free) means to do market research and build your customer base, in one fell swoop.

The Kickstarter project funding categories are broad and range from art, to food, to publishing, technology, and theater. The average project is raising under $10,000, but take a look at the Most Funded page for a list of successfully funded projects and how much they received (one of them was 15,454% funded for a total of $77,271 pledged!) 

Only 44% of the projects meet their financing goal, and a project that doesn’t meet its goal receives no money — that is, if the project doesn’t meet its funding goal, the supporters get their money back, so it’s a no-risk funding situation. But if you look at Kickstarter’s FAQs, it does talk about accountability, and do not take responsibility for the project creator completing the project after the money is handed over. It’s up to the donor to check out the project and creator thoroughly. The FAQ points out that “Because projects are usually funded by the friends, fans, and communities around its creator, there are powerful social forces that keep creators accountable.”

According to the website, more than $200 million for 20,000 projects has been raised. Kickstarter takes a cut, 5%, but only if the project is fully funded. In contrast to traditional venture capital funding, the project owners keep 100% ownership of their work.

Like all truly integrated social networking applications, Kickstarter is tied into all of the major social media channels, giving the project owners an easy way to promote their projects through their online and offline communities.

So what do investors get for their most popular pledge of $25 or average pledge of $70? There’s no tax write-off or ownership of the project, but the project creators offer rewards, related to the project itself. According to Kickstarter, here are the four most popular types of rewards with examples:

• Copies of the item: The album, the DVD, a print from the show. These items should be priced what they would cost in a retail environment.
• Creative collaborations: A backer appears as a hero in the comic, everyone gets painted into the mural, two backers do the handclaps for track 3.
• Creative experiences: A visit to the set, a phone call from the author, dinner with the cast, a concert in your backyard.
• Creative mementos: Polaroids sent from location, thanks in the credits, meaningful tokens that tell a story.

Projects with creative and tangible products are the most likely ones to get funded.

Stay tuned for part 2 to find out about how non-US residents can crowdfund their creative projects.