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CROWD-FUNDING

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                                                                                             By Rohan Tuteja

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                                                                                             By Rohan Tuteja

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Facebook

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Crowdfunding The use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.

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Crowdfunding: What It Is, How It Works, and Popular Websites

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Crowdfunding is the use of small amounts of capital from a large number of people to raise money or fund a business. Learn the pros and cons of crowdfunding.

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Guidelines for creating an effective crowd-funding campaign

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Opinions expressed by Entrepreneur contributors are their own.

Kickstarter is an invaluable resource for those looking to turn their idea into reality, but launching a campaign on the platform can be a fraught exercise. Success requires more than just enthusiasm and an awesome product; unless you have a clear strategy for raising money on the platform, you'll likely miss your goal and walk away with nothing but raw nerves.

Luckily, you don't have to create a campaign in the dark: There are plenty of comprehensive guides and tip sheets outlining effective crowdfunding techniques, and now, Kickstarter is offering up advice of its own.

On the heels of its new relaxed rules for raising money on the platform, Kickstarter has published a "Creator Handbook," which it describes as a "one-stop guide to designing a solid Kickstarter project, presenting it effectively, finding backers, and delivering on your plans."

"We've talked to countless creators about what they learned from their campaigns, what it's like to run one, and the best ways to help a project succeed," Kickstarter said in a blog post introducing the Handbook. "It all adds up to a mountain of collected knowledge about how to make an idea thrive."
Related: Become a Crowdfunding Wizard: 8 Tips You've Probably Never Heard Before.
And so, without further ado, here is a roundup of useful tips and best practices for creating a successful campaign, courtesy of Kickstarter. (You can read the full Creator Handbook here).

1. Keep your campaign under 30 days. While your funding round can last anywhere between one and 60 days, a longer campaign doesn't necessarily mean people are going to give more. In fact, statistically, projects lasting 30 days or fewer enjoy the highest success rates, according to Kickstarter: "Shorter projects set a tone of confidence and help motivate your backers to join the party."

2.Make a budget and include it on your campaign page. It doesn't have to be super detailed, but a budget will show potential backers that you've done your homework.

Because Kickstarter uses an all-or-nothing funding model (i.e. while you can raise more money than your target, if you fail to hit it you'll walk away with nothing) your funding goal should be the minimum amount necessary to execute your project.
Related: 'Reading Rainbow' Is Coming Back Thanks to Kickstarter
Don't go too low, however - remember, you are responsible for delivering rewards to your backers if your campaign is successful. "Consider the costs of offering each reward," Kickstarter recommends. "Presumably you'll use some of the money raised on Kickstarter to make that happen. Plan ahead and budget accordingly for these costs."

In addition, Kickstarter suggests you leave a monetary cushion to pay, well, Kickstarter. The crowdfunding platform applies a 5 percent fee to the total funds raised on successful campaigns, and there are additional credit card processing fees and tax fees. (Check out Kickstarter and Taxes: a guide for your accountant for more details.)

3. Offer a lot of small rewards. According to the crowdfunding platform, the most popular pledge amount is $25, while the pledge average (for big and small pledges) rings in at just $70. Make sure the affordable perks don't run out too fast, or you risk losing potential backers who can't afford steeper offerings.

4. Reach out to people you know before the launch. We all hear about projects that captivate the internet and meet their funding goals in a few hours, but those, unfortunately, are anomalies. "For most projects, support will come from the people you know," says Kickstarter.
Related: This 3-D Printing Pen Hits $50,000 Kickstarter Goal In Two Hours
So reach out to friends, family, relatives, co-workers, ex-boyfriends, acquaintances etc., basically anyone you think would be interested and/or supportive in your project to drum up pre-launch buzz. Once the funding window opens, it's important to reach the 20 percent benchmark as soon as possible; That percentage, according to Kickstarter, is a crucial tipping point -- while 10 percent of projects never receive a single pledge, 80 percent of projects that manage to raise more than 20 percent of their goal end up being successful.

5. Send out tailored messages. Don't spam your entire contact list with the same rote message. Kickstart recommends breaking your social network into subgroups and customizing your message for each one. Will your older, conservative relatives going to react to the same call to action as your college aged nieces and nephews? Probably not.

6. Follow up individually. It's the next natural step after customized group messages, especially for important potential backers right before the launch. "Try highlighting very specific things about the project you think each individual might like," Kickstarter says.
Related: This Site Lets You Get Backers for Your Crowdfunding Project Before It Launches

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6 Tips From Kickstarter on How to Run a Successful Crowdfunding Campaign | Entrepreneur

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A roundup of useful tips and best practices for creating a campaign that meets or exceeds its funding goal.

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A critical analysis of crowd-funding loop holes and traps that most people tend to overlook are presented in this article by forbes.com. The most interesting aspect is the amount raised v/s the amount that is received by start-ups and subsequent fee and taxes imposed.

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Crowdfunding gives entrepreneurs and hobbyists options to fulfill their dreams. It can be a blessing to realizing the product you've tried to bring into existence over the last ten years. But, it can also be a curse. Hopeful "crowdfundees" need to understand the costs associate with the process as well as the benefits. This is a full disclosure of what to expect.
Fees
Fees are the most obvious costs associated with crowdfunding. The industry norm is to charge a percentage based on the amount "collected." It's important to distinguish between the amount "collected" and the amount "raised." The amount raised doesn't always translate into dollars in your pocket. Credit cards are declined, numbers are incorrectly entered, fraudsters are always lurking and a million other rules covered under Murphy's Law. Thus, you want to make sure that the platform only charges you on the amount received, otherwise you're going to be paying fees on money you never got! (Note: Major crowdfunding platforms all generally comply with this industry standard.)
Advertisement and Publicity
Videos are the key to any successful crowdfunding campaign. The only connection the world has to your project is through the video or commercial that you produce. Even the worst idea has a shot in the dark if you have a high quality video that clearly describes the problem you're address and the solution. A high quality video will generally cost at least $1,000 with the assistance of any professional videographer and editor. This is assuming you're keeping it around one to two minutes. Video production is directly depending on the length of the video. It's no secret that almost every successful crowdfunding campaign is the commercial. It demonstrates your professionalism and the public will interpret the production quality to be your trustworthiness.
Taxes
Taxes are the third most important factor in crowdfunding. The first problem is raising money, but the next thing you need to worry about is how to avoid losing it to the IRS. On average, you'll pay at least 40% (this is a lowball number) in taxes on the amount raised without taking the proper steps to prevent the year-end tax hit. I've gone over the issues with taxes and crowdfunding in the past here.

A few key points are that the IRS knows that you've received money and even if it didn't, you're still required to report the income. If you're giving away anything tangible like t-shirts (the most common reward available), then you're required to file and pay sales taxes as a vendor. Lastly, make sure you time the campaign to cover your expenses.

For example, Bob raises $100 at December 31, and he spends the money raised to complete the project in January. The IRS is going to require Bob to pay taxes on the $100. This means Bob needs to pay the IRS about 25% in taxes, 15% in self-employment taxes, 10% to state taxes and possibly city taxes. Thus, Bob raised $100, but pays 50% in taxes. Bob only gets 50 cents for every dollar raised before he ever does anything. Making sure you time your expenses to match your crowdfunding campaign is important. You can do this by either making sure the expenses are in the same year or by applying the accrual method of accounting for your taxes.
Rewards
Rewards are usually the most expensive cost in a successful crowdfunding campaign. Successful campaigns usually have rewards that attract thousands of people, but this means that you're going to need to process thousands of rewards. T-Shirts are a favorite rewards that people use. Please don't do this. Assuming you purchase decent quality t-shirts, the cost is about $10 per shirt without print-screening. To avoid increasing your costs, you could print-screen your own t-shirts or hire someone else. Assuming you took the cheaper rout, you'll need to spend hours to screen each shirt for the design you promised. The next problem is shipping and handling. Shipping will cost at least $2 to $3. But, every business knows that something will go wrong. People will always mistype or enter the wrong address, the post office may misplace your package or the item is damaged in transit. To avoid this problem, the best option is to use a service that will confirm every address is written properly against a database. This will at least give you the confidence to know that the address you have is an address "recognized" by the post office.

The real answer to a successful crowdfunding campaign is to give intangible rewards. This avoids all the problems above (sales taxes, shipping and handling, damaged goods, dollars and hours spent away from your real goals). Obviously this doesn't always work for every project. The best projects are films, games, books and other projects that are inherently "intangible." Taking advantage of intangible rewards will save you thousands of dollars.

Note: There are always going to be exceptions to the rule. For example, if your project is to build a product to sell, then that is an entirely different issue. Your "rewards" are really pre-sale orders and "crowdfunding" is really just a promotion or discount in disguise. But, this could clearly be successful because everyone loves a good discount.
Costs You Forgot About
The last cost that everyone forgets is their own time. No one thinks about the hours, days, months or years spent bringing the project to life. Time is money - including yours. Every cost we've discussed is an expense that is paid to someone else, but it fails to consider the cost of your time. Assuming minimum wage, a project that you spend a month on is going to cost you $1,200. Your time is valuable and you should never forget. The most common gripe that you'll hear about crowdfunding is that although the campaign succeeded, when you take into consideration the time spent. You took a beating.

Make sure you taking the effort to include your time in the cost of the project. For example, if it's going to take $100,000 to take the project off the ground. Add another $50,000, so that you can afford to eat and pay taxes. Remember, if you die, so does the project!

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Successful Crowdfunding Campaigns Don't Give Tangible Rewards

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Crowdfunding gives entrepreneurs and hobbyists options to fulfill their dreams. It can be a blessing to realizing the product you've tried to bring into existence over the last ten years. But, it can also be a curse. Hopeful "crowdfundees" need to understand the costs associate with the process as well [...]

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5 examples of crowd funding campaigns

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1. +Pool This awesome New York based project makes it possible for everyone to swim in clear river water in New York city. The proposed target for this campaign was around $250,000. However, it managed to generate just above the benched target at around $273,114 precisely.

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2. The Buccaneer ( Consumer 3-D printer ) : Initiated by pirate3D raised over $1.4 Million on Kickstarter. The project initiated with a target of $100,000

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3. Scanadu Scout A scanner packed with sensors designed to read your vital signs and send them wirelessly to your smartphone in a few seconds, any time, anywhere.

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4. Ouya : A new kind of Video game console that got funded at a staggering 904% of the pledged amount.

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OUYA is raising funds for OUYA: A New Kind of Video Game Console on Kickstarter! Cracking open the last closed platform: the TV. A beautiful, affordable console -- built on Android, by the creator of Jambox.

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5. Pebble (Smartwatch) : This project was initiated in 2012 and raised $10.3 Million till may, 2012 on Kickstarter.  The Pebble is compatible with Android and iOS devices. When connected to a phone, it can receive a vibrating alert to text messages, emails, incoming calls, and notifications from social media accounts. It can also act as a remote controller for the phone, or for cameras such as the GoPro. As of February 2014, the Pebble app store had over 1,000 applications.

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Pebble: E-Paper Watch for iPhone and Android

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Pebble Technology is raising funds for Pebble: E-Paper Watch for iPhone and Android on Kickstarter! Pebble is a customizable watch. Download new watchfaces, use sports and fitness apps, get notifications from your phone.