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Definition

crowdfunding

Crowdfunding is a financing method that involves funding a project with relatively modest contributions from a large group of individuals, rather than seeking substantial sums from a small number of investors. The funding campaign and transactions are typically conducted online through dedicated crowdfunding sites, often in conjunction with social networking sites. Depending on the project, campaign contributors may be essentially making donations, investing for a potential future return on investment (ROI), or prepaying for a product or service.

Similarly to crowdsourcing, the concept from which it developed, crowdfunding's success relies upon the ability to canvass a sufficiently large group of potential contributors. The idea is the same as that behind many fundraising campaigns: convincing enough people to contribute to reach a target figure.

Crowdfunding sites are sometimes referred to as platforms because they provide a venue for all aspects of a campaign, such as creation of the public interface, campaign and project tracking, a payment mechanism and disbursement of funds.

A sampling of crowdfunding sites:

  • IndieGoGo, established in 2008, allows anyone to set up a campaign for free. A fee is charged on money raised. Writers, musicians, film makers and visual artists often use the platform to fund projects but anyone can post any type of campaign. A recent campaign soliciting money to send a bullied school bus monitor on vacation amassed enough money to fund her retirement.
  • Kickstarter, also founded in 2008, is a platform for funding creative projects. Campaigns include music, film, publishing, theater and video game projects. Contributions are pledged and only charged when/if the target figure has been reached.
  • 40Billion is a platform for funding business startups. Any entrepreneur with a United States address can create a campaign.
  • Funding4Learning is dedicated to education-related projects. Most campaigns are to fund continuing education. Other projects seeking funding include student debt payment and education-related travel.
  • FirstGiving is a platform that allows individuals to create their own person-to-person fundraising pages for the benefit of any United States-based non-profit organization.
  • Spot.us is a platform for what it calls "community-funded reporting." Journalists pitch story ideas and the community collaboratively evaluates the ideas and pays to have the successful ones written. The site partners with news organizations for distribution.

In the United States, the Jumpstart Our Business Startups (JOBS) Act, signed into effect in April 2012, includes crowdfunding provisions designed to make it easier for entrepreneurs to raise funds and get new businesses established before they have to deal with compliance requirements.

This was last updated in June 2012

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