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Crowdfunding basics

THE TAKEAWAY: Crowdfunding is a great way to get funding for a specific project. It takes energy and creativity, but it can bring in much-needed funding and attract a whole new audience of supporters.

What is crowdfunding?

Crowdfunding is an online fundraising campaign for a specific project. It differs from traditional fundraising in a number of ways, but the most significant is the importance of setting a target: the fundraiser sets a target, people pledge an amount Ė usually in exchange for some form of reward, but sometimes just as a straight donation Ė and the amount pledged/donated is remitted to the fundraiser only if the target is reached.

How does it work?

Crowdfunding offers individuals, groups and organisations a way to raise funds by selling tangible and intangible rewards via an online crowdfunding platform. A project must have a funding goal and a time limit set by you, the project creator. During this time you spread the word about your amazing idea to your fans, friends, family, and any strangers and sponsors you can wow with your pitch. Supporters simply register and help fund the project.

Most crowdfunding is ďall or nothingĒ. What does this mean?

Most crowdfunding services require every crowdfunding project to have a clear funding goal and a time limit within which the funds are to be raised. If the project doesnít reach the target amount within the time limit, no money changes hands. This is why itís so important to be realistic about your funding goal Ė set it too high and your chances of reaching it are significantly diminished.

What is a project deadline?

You're required to set a specific funding goal for your project and a time limit for meeting this goal. Your timeframe can be as short as one day, and up to 60 days. The project deadline is the date until which supporters can contribute funds toward your target. Your crowdfunding platform will set the end-time.

What happens when the project reaches its deadline?

Broadly speaking, there are two possible scenarios here. Be sure to read the terms and conditions of the crowdfunding platform you use.

Funding successful

If your project achieves or surpasses its funding goal Ė congratulations! All pledged funds are collected and transferred to your bank account. You are then responsible for completing the project and delivering the rewards you promised to your supporters.

Funding unsuccessful

If your project doesn't meet its funding goal, all pledges are cancelled and no funds are transferred. But don't lose heart. You can always go back to the drawing board, rethink your master plan and try again.

Do crowdfunding services collect fees?

Yes, they do. No crowdfunding service is fee-free, but fees do vary from one service to the next, so do your homework. If you donít reach your target, no fees apply. Make sure you have a good look at the terms and conditions and fee structure of your chosen crowdfunding service before you commit. You want the maximum amount of donated funding to reach your project, so shop around.

When does the crowdfunding service start collecting the pledges?

Most crowdfunding services, start collecting pledges as soon as a project reaches 100% of its funding goal within its timeframe. The timing of the actual transfer of funds to your account varies depending on whether the pledge is via PayPal or via credit card.

Can projects raise more money than their goal?

Yes, absolutely.
Projects can gain support right until the project deadline. Even if you achieve your target, don't stop spreading the word!

What are rewards?

Rewards are designed by you to both (a) encourage your supporters to fund your project and (b) thank them for their support. Get creative with your rewards! They represent a powerful opportunity to express yourself and differentiate your project from others, as well as to offer something unique that supporters can obtain only by supporting you. Most crowdfunding platforms specifically donít allow you to offer certain things as rewards. Check the guidelines of your crowdfunding service.

What can I offer my supporters?

Whatever you think will capture their imagination and persuade them to back your project Ė get as wild and imaginative as you dare! Whether itís an mp3 download or a VIP trip to LA, you can be as bold as you're comfortable with. You just need to make sure you aren't offering anything prohibited by law or by your chosen crowdfunding service, and that you've budgeted for and are able to deliver the rewards you offer.

Who is responsible for delivering the rewards?

You are fully responsible for delivering the rewards set out in the project, by the time agreed. Crowdfunding services simply provide the platform to showcase the rewards featured, and the person or organisation behind the project. If you are unable to deliver all rewards to all your supporters as set out in your project, you may be in breach of consumer law and responsible for providing a full refund to your project supporters.

Iím a not-for-profit with DGR status. Can I fundraise by crowdfunding?

Yes! But there are some important things to remember.

If you have DGR status, you can provide a tax-deductible receipt in return for a pledge of the same amount. You canít, however, provide a tax-deductible receipt in return for a pledge associated with a reward. For example, letís say one of your supporters wants to pledge $100 towards your project in return for a reward of entry to your next gala ball, and also wants to pledge $50 as a donation towards your project. Theyíll need to make two separate pledges, and youíll need to issue two separate receipts. The receipt for $50 will be tax deductible, and the receipt for $100 wonít be tax deductible.

It's your responsibility to issue correct receipts and to ensure that you're operating within all applicable laws and regulations. If you're unsure, we recommend you speak to a fundraising expert, lawyer or tax adviser.