Crowdfunding (alternately crowd financing, equity crowdfunding, crowd-sourced fundraising) explains the collective effort of individuals who network and pool their money, usually via the internet to efforts initiated by other people or organizations.  In layman's terms, crowdfunding is getting a group of regular individuals (versus banks, venture capitalists or angel investors) to collectively fund your venture
Crowdfunding is used in support of a wide variety of activities, including disaster relief, citizen journalism support of artists by fans, political campaigns, startup company funding, motion picture promotion, free software development, inventions development, scientific research and civic projects.

Crowdfunding can also refer to the funding of a company by selling small amounts of equity to many investors. This form of crowdfunding has recently received attention from policymakers in the United States with direct mention in the Jobs Act; legislation that allows for a wider pool of small investors with fewer restrictions. While the JOBS Act awaits implementation, hybrid models, such as Mosaic, Inc., are using existing securities laws to enable the public in approved states to invest directly in clean energy projects as part of a crowd.

Crowdfunding has its origins in the concept of crowdsourcing, which is the broader concept of an individual reaching a goal by receiving and leveraging small contributions from many parties. Crowdfunding is the application of this concept to the collection of funds through small contributions from many parties in order to finance a particular project or venture.

Crowdfunding models involve a variety of participants. They include the people or organizations that propose the ideas and/or projects to be funded, and the crowd of people who support the proposals. Crowdfunding is then supported by an organization (the "platform") which brings together the project initiator and the crowd.

What are the 3 Core Types of Crowdfunding?
The first is debt-based crowdfunding also known as peer-to-peer lending. This is offered by sites like and On these sites, entrepreneurs (and individuals) can solicit loans from other individuals. Because they are loans, they must be paid back. Generally these loans are capped at $50,000 per year.

The second type is equity-based crowdfunding. This is offered by sites like and With these sites, individuals who give you money become investors and own equity in your company.
The final type of crowdfunding is donation-based crowdfunding. This type of crowdfunding is the most popular and is offered by sites including,, and several others.

Donation-based crowdfunding is my favorite since you neither give up equity nor have to repay the debt you receive. And it's MUCH easier to raise since there are tons more potential funders than funders of debt-based or equity-based crowdfunding.

However, there is an important caveat with donation-based crowdfunding. Which is this: generally people don't donate money to your cause simply out of altruism. Rather, the companies who have successfully raised donation-based crowdfunding offer rewards in return for donations.
Specifically, these rewards typically include the product or service the company intends to produce and/or offer. For example, San Francisco's Peter Dering wanted to raise money for a new product he conceived called the Capture Camera Clip System (an accessory for photographers that secures their cameras to their other gear).

So, as a reward to those who donated $50 or more, he promised to ship them the Capture Camera Clip System product when it was developed.
So, as you can see, this type of crowdfunding is essentially pre-selling your products or services to your customers. Which is really the same as customer financing, which has been around for a while. But, with the internet, it's so much easier to reach tons of prospective customers.

The good thing about donation or rewards-based crowdfunding is that it is amazing market research. If customers are willing to buy your product or service before it's even available, you clearly have a winner on your hands.
Oh, by the way, just last month Peter Dering raised $364,698 in crowdfunding for the Capture Camera Clip System. Yup, it works!

And in case you were wondering whether donation or rewards-based crowdfunding can work for you, below is a sample of companies who have recently raised funding with it:

A watch company that raised $10,185,521
An online magazine who raised $3,895
A mustard manufacturer who raised $4,293
A cupcake retailer who raised $7,240
A software company that raised $3,336,371
A butcher shop who raised $16,405
A portable hot water heater which who raised $60,642
A speaker company who raised $88,321
A bike lock which raised $108,065
A video company who raised $120,514
A cell phone accessory which raised $131,220
A battery charger which raised $145,034
A digital camera which raised $169,209
A tablet stand which raised $190,352
A social networking company who raised $200,642
A coffee temperature device which raised $306,944

What are the Steps to Attaining Donation-Based Crowdfunding?
Below are the 14 steps I've identified that are critical to successfully raising donation or rewards-based crowdfunding.  Choose your crowdfunding platform
Create an account

  1. Create your funding project
  2. Categorize your project
  3. Create your project tagline
  4. Create your project teaser text
  5. Create your full text project summary
  6. Determine the right fundraising amount
  7. Determine the right donation time
  8. Develop your list of rewards
  9. Create your project visuals
  10. Create your project video
  11. Promote your project to your network
  12. Maintain and update your project
  13. Follow these steps and you can get hundreds or thousands of individuals to donate money to your venture. And then you'll be off to the races



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