Written by Marc R Barnes EA
January 03, 2014

Crowdsourcing is the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employees or suppliers.

 

A classic example of Crowdsourcing is when NASA needed millions of photos classified into categories within their database. Instead of paying employees to do this, they set up a tool and asked people over the internet to categorize their photos for them. The project was done in no time and with low cost.

Crowdfunding is using this Crowdsourcing concept to raise funds. It leverages the instant global reach of the internet to generate awareness of a defined cause and then facilitates the collection of money for that cause.

How is it used?

Would you consider sending money to someone you don't know? Traditionally the answer would be no, but the delivery of Crowdfunding is so clever that it has become popular. Here are some of the common uses of Crowdfunding;

  • Artistic Development. Struggling musicians found Crowdfunding a great way to raise funds to purchase studio time to develop their music. In return for a small donation, you might receive free downloads of their tunes or a free gift like a t-shirt.
  • Inventions. Inventors with ideas, but no funds use Crowdfunding tools to define their concept and search for investors to help fund development. By keeping the individual investment low and the number of participants high, the risk to any one person giving money is manageable. In return, investors might receive a free product or a discount when the invention hits the market.
  • Medical Needs. To help address the high cost of medical procedures and facilitate the collection of donations, sites are set up to help collect money for medical needs. Imagine someone you know that is diagnosed with cancer or Lou Gehrig's disease. Crowdfunding tools can help a family in need collect donations to help the patient.
  • Funding Education. Crowdfunding is even used to help people pay for college and graduate school. The typical means of collecting these funds is a pure donation. You set up your request and solicit donated funds based upon your story. More progressive Crowdfunding educational models actually provide a return on your investment with receipt of part of the student's future earnings.
  • Charitable Causes. There are even Crowdfunding sites that help small charitable organizations generate funds for their cause. One of the more unique is kiva.org, where you donate $25 to help third world entrepreneurs start a small business. These sites make it easy for prospective donors to find organizations that align with their interests and it helps small organizations compete with the fund raising practices of large charitable groups like United Way and the Red Cross.

Things to consider.

Is Crowdfunding in your future? Here are some things to consider.

  • Understand the model. Each Crowdfunding site typically has a specialty. Know what it is. Also understand their model and the costs associated with their fund raising practices.
  • Know their track record. One of the reasons Crowdfunding works is because the "crowd" also identifies the bad apples. If a Crowdfunding site is questionable, you can find negative comments about experiences with the site. The same is true with individual projects or requests.
  • Keep your investment small. Most Crowdfunding requests are small. That makes the individual risk for any one donation or investment small as well. This is something to consider prior to taking part in any Crowdfunding exercise.
Common Crowdfunding Sites

If you wish to know more, here are some Crowdfunding sites that have been around for some time. Remember, these sites are noted here for illustrative purposes only, no endorsement is implied.

Web Site Primary Purpose
ArtistShare.com artist fundraising
Gofundme.com multipurpose
Indiegogo.com multipurpose
Kickstarter.com art/creative projects
Fundable.com small business investment
Crowdrise.com charitable donations
Kiva.org third world entrepreneur funding