‘Crowdfunding’ – gimmick or fundraising breakthrough?

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From New Tech Post

“Crowdfunding” is a means of raising money for projects through social media. Using crowdfunding, a large number of people can individually contribute small amounts of money to finance a project. Generally, a project creator identifies an amount of funding needed for a specified project and individuals pledge varying sums of money to generate the amount required. It is particularly useful for projects that may not qualify for traditional methods of funding.

Kickstarter, based in New York, was founded in April 2009 by Perry Chen, Yancey Strickler, and Charles Adler. It specializes in providing a platform to generate funding for projects falling into one of its 15 creative categories. In order to launch a project on the website, a number of guidelines must be met. Some of which are:

• The project must be finite and not be simply for an ongoing enterprise i.e. it must be to create a new album rather than a record label.
• The project creator must set a funding limit and a time limit (between 1 and 90 days) to reach this financial goal.
• The project must have reached its monetary target within the time specified or the money pledged by individuals reverts back to that individual.

When a donation is made to a project, it is held in an escrow account until the project time expires. At this point the money is either returned to the donor (if the funding goal is not reached) or transferred to the project creator (if successful). If the funding goal is exceeded before the deadline, the project can continue to accumulate funding up until the time limit expires.

The project creator must also set awards to incentivize individuals to donate. For example, in 2009 Emily Richmond wanted to raise funds to sail around the world. To tempt individuals to pledge money, she offered the gift of an origami sailboat for a $5 pledge or a coconut for $125. Click here to read more.