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How Crowdfunding Works


Co-anchor Lara Spencer talks to Zack "Danger" Brown on "Good Morning America" in July 2014. Brown launched a Kickstarter campaign to make potato salad and raised $55,000 from his original $10 goal.
Co-anchor Lara Spencer talks to Zack "Danger" Brown on "Good Morning America" in July 2014. Brown launched a Kickstarter campaign to make potato salad and raised $55,000 from his original $10 goal.
Fred Lee/ABC via Getty Images

Zack "Danger" Brown wanted to make some potato salad. Not as a business — just to try his hand at making the popular picnic dish. He figured he needed $10 to whip up a batch. So Brown launched a Kickstarter campaign on July 3, 2014, to fund his potato salad production (yes, really). By the end of his campaign 30 days later, he'd received an amazing $55,492 from 6,911 backers [source: Kickstarter]. Brown's quirky crowdfunding campaign was a resounding success.

Crowdfunding is a modern way to raise money. People use the Internet to advertise a product or project they'd like to create, or a debt that needs repaying and ask donors around the globe for money to achieve their goals. The crowdfunding websites charge campaigns a fee, generally 3 to 10 percent of the funds collected in a fully funded campaign [source: CrowdfundingBlog].

Since the fundraisers are ostensibly short on dough, donors are rewarded by nonmonetary or inexpensive means. Brown, for example, promised $1 donors that he'd thank them online, plus say their name out loud while he concocted his potato salad. Donors who threw in $2 were additionally promised a photo of him making the potato salad [source: Kickstarter]. But sometimes donors are promised bigger items, like a CD of the album donors are helping the band to make, or for a really big contribution, perhaps a private meeting or dinner with the campaign founder.

Not all projects are accepted on crowdfunding sites; each site has rules for which types of projects it will accept. But sometimes the guidelines are cryptic. And if projects are turned down, you're not always told why [source: Null].

Don't think crowdfunding is an anomaly. In 2014, the practice grew 167 percent from 2013, with $16.2 billion raised versus $6.1 billion in 2013. Experts expect the industry to double again in 2015, with some $34.4 billion being raised. North America leads the world in the practice, although Asia is quickly becoming a major crowdfunding region [source: Crowdsourcing].

While crowdfunding sounds like a great idea, and can be a relatively seamless way to finance a worthwhile project, most fail to garner enough support. And depending on which platform you use, you may not get to keep the money raised unless you met your entire goal. And from the donors' point of view, there is always the possibility that even if the project is fully funded, it doesn't see the light of day.


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