Kickstarter, GoFundMe and other online fundraising platforms, referred to as crowdfunding, allow individuals worldwide to provide money and support to a particular cause or project. Films, books, video games and business startups have been successfully launched by crowdfunding campaigns. Individuals have benefited as well.People have also raised money for medical expenses and legal battles through viral marketing. Small business owners who have run successful ñ- and not so successful ñ- campaigns say the process is not as easy as signing up for an account and waiting for money to roll in.Kickstarter launched in 2009, and has helped small businesses raise $2.2 billion for almost 100,000 projects. The site allows entrepreneurs and designers to fund individual business and creative projects. GoFundMe has raised more than $1 billion, and allows people and organizations to raise funds for charitable activities, medical expenses, funerals and memorials. Kickstarter is ìall-or-nothingî — if the fundraising goal is not met, the proceeds are returned to the contributor. GoFundMe contributions go to the beneficiary, regardless of the amount raised.Drew Johnson of Colorado Springs-based TechWears used Kickstarter to raise money for his circuit board-based clothing accessories business. ìI had been doing this as a hobby and decided to go all in with it,î Johnson said. ìKickstarter ultimately is a marketing mechanism. I had a vision for bringing circuit board ties to the world and went to Kickstarter as a way to get that global exposure.îA successful crowdfunding campaign for a business project is far more complicated than signing up for an account and expecting people to give money. ìIt’s a lot of work doing Kickstarter; it’s not something you can just post — it’s not going to fuel itself,î Johnson said. ìYou have to get out of the site and find influencers to get more eyeballs on the project. It’s rare for a Kickstarter to get a viral launch without a lot of strategic planning.îJohnson estimates he spent 70 to 80 hours a week over three months before launching the campaign, with no guarantee of success. ìI planned mine for three months, and thought I was ahead of the curve, but now I see some wildly successful campaigns are planned nine to 12 months in advance,î Johnson said. ìYou just can’t plan enough with this thing.îThe business owner raising money on Kickstarter or individuals through GoFundMe do not receive all the money pledged by contributors, even if the project meets its goal. GoFundMe and Kickstarter both collect 5 percent of the contributions, in addition to a 3 percent processing fee.The fees prompt some businesses to try to raise money directly from their customer or fan base. BittyLab, a baby bottle developer out of New Rochelle, New York, cut out the crowdfunding sites after missing their goal on Kickstarter, said founder Priska Diaz. ìI needed to draw my own crowd to this site and pay the fees,î Diaz said. ìThen I thought, ëwhy can’t I host a crowdfunding post on my own website or better yet a pre-sale?í This way, I benefit from the traffic, I keep 100 percent of the funding; and I could pass the savings along to potential customers.îUsing her own site allowed her to gain newsletter subscribers and repeat visitors with minimal public relations costs. ìAt the end of the pre-sale, I had 10,000 newsletter registrants, 8,000 unique visitors; and raised $50,000 ñ- which paid for inventory,î Diaz said.The amount of money changing hands on crowdfunding sites also draws in scam artists and entrepreneurs hoping to cash in on creators’ hopes to become the next big crowdfunding success story. ìWhen you launch your project, you’ll be inundated with sales pitches from PR agencies, Kickstarter backer clubs: Oh my gosh, my email inbox got 100 to 150 sales pitches,î Johnson said. ìYou have to be careful and be aware that you will be targeted. There are a lot of people out there trying to get in on the action.îAccording to Kickstarter, 36.3 percent of projects reach their funding goal and receive the money. Some categories are more successful than others. Theater and dance projects are most successful. Technology and journalism are most likely to miss their targets.ìAs innovative as my idea was, it didn’t get funded,î Diaz said. The uncertainty after lots of planning and effort is another drawback of crowdfunding a business. ìWhen you’re not sure if you’re going to reach your goal, it gets scary because Kickstarter is all or nothing,î Johnson said.Like many new Internet-based developments, state and federal governments are still trying to decide how to treat the contributions to crowdfunding projects. The IRS now requires crowdfunding sites to send a form 1099-K to businesses and individuals that raise more than $20,000 or receive more than 200 separate contributions. Most Kickstarter campaign revenues are taxable income since the contributors receive a physical reward depending on their contribution level, according to a Journal of Accountancy article in October. GoFundMe and Kickstarter both recommend their project owners get tax advice from a professional.
