What Is Crowdfunding?

So, what is crowdfunding? You’ve heard the term thrown around, from Brandon Sanderson’s $41.7 million dollar Kickstarter campaign for four new books to the $12 million dollar funding of the Travel Tripod by Peak Design. But what is crowdfunding?

Crowdfunding can be seen as raising venture capital, writ small. Rather than try and get a small number of investors to put in a lot of money on a project, somebody tries to get a large number of people to contribute a small amount of money into a finished product. This can be very useful for someone who is trying to release a relatively “niche” product, or is trying to create a new product of some kind.

One of the biggest issues with crowdfunding is that it is an investment. Which means that you could lose your money if the person doing the crowdfunding fails to come through with a final product of some kind. In most cases, you won’t be able to get the money back, as the crowdfunding platforms merely handle bunding the money for the person setting up the crowdfunding campaign.

Doing crowdfunding is not a substitute for not having a good business plan or knowing how you’re going to make the final product. Indeed, one of the best things you can do when planning on a crowdfunding campaign is to use crowdfunding to turn a viable prototype into a finished and produced product.