Crowdfunding philosophies: donations vs. sales

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Backers typically think of projects as philosophically divided, partially or completely, between two categories: donations and sales. This post explores the two crowdfunding philosophies.

Donation projects are designed to produce art, ideas, social or political movements, services, or public objects that backers believe should exist. Backers typically do not own the final product or outcome, but are satisfied that they could help ensure a worthy creation or specific outcome resulted from the campaign.

For donation campaigns, backers may receive some object commemorating their contribution—a thank you note, an attribution, or a related piece of memorabilia, for example—but the primary outcome is not the object delivered to backers.

There are all kinds of donation-themed projects on sites like GlobalGiving and IndieGogo. I have contributed to charity campaigns including things like training a service dog for a young child with medical issues, bringing solar-powered water pumps to villages in Central America, and helping facilitate a return to school for young dropouts in Kenya. Maybe you have seen your friends sharing links to donation-based crowdfunding projects on Facebook and other social media sites.

GlobalGiving exampleSales-based crowdfunding

Sales projects seek to raise money to allow the design, manufacturing, and distribution of a physical good that backers desire to possess. Unlike going to a store and buying something that already exists, providing money in advance to a sales-based crowdfunding project enables the actual creation of the product. Advance purchases provide seed capital to cover costs of design and manufacturing that might otherwise be infeasible.

This form of crowdfunding provides a vote of confidence for the creation of innovative goods. I have backed crowdfunding campaigns to directly purchase new and innovative coffee pots, keychains, handbags, and camera gear before they were available for purchase through traditional retailers. Although some of these products later found commercial success through traditional retail channels, others did not.

This is an excerpt from Crowdfunding Basics In 30 Minutes, by Michael J. Epstein. To learn more about crowdfunding or to purchase a copy of the book, visit the About Crowdfunding Basics In 30 Minutes.

Crowdfunding is not just about money

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For creators, crowdfunding has the potential to address various project needs. Obviously, crowdfunding campaigns serve to collect money to make the idea economically possible, but the community benefits are arguably more significant. Project backers feel emotionally invested in the success of a project. This is true both during the fundraising campaign itself and when the project is brought to life.

Regardless of how a founder launches a creative or entrepreneurial project, one of the most challenging aspects of attaining success is finding an audience or customer base. Crowdfunding has a built-in advantage of establishing a community of enthusiastic supporters during the campaign. Once a backer has helped fund a project, he or she has status as an early adopter with bragging rights as a tastemaker or trailblazer. We all love to be the first to use or own a new technology, the first to see an exciting film, or even to be able to point out our name in the credits. Backing projects can raise the social status of the backers themselves. As a result, they have some personal investment in the external notoriety and recognition of the final product. This is especially rewarding when the project becomes successful outside of the backer community!

Such recognition has been a primary benefit of the crowdsourced film projects I have participated in. Once a film is released, it is not uncommon to see several hundred supporters spreading the word to their respective social circles, noting they have a “special thanks” in the credits. This type of enthusiasm and publicity can be very hard to obtain organically. In addition, people who back crowdfunded projects tend to be active and enthusiastic promoters of the things they love. These are the kinds of vocal and engaged tastemakers you want for your project!

Crowdfunding is not just about money

An example of a crowdfunding project for a film.

A dedicated crowdfunding community can also serve as a signal to investors that a project could achieve real business success. Some entrepreneurs leverage crowdfunding as a proof-of-concept to raise larger pools of money via traditional methods. Investors certainly love great ideas, but great ideas with proof of success and a vocal support base of tastemakers are even better.

This is an excerpt from Crowdfunding Basics In 30 Minutes, by Michael J. Epstein. To learn more about crowdfunding or to purchase a copy of the book, visit the About Crowdfunding Basics In 30 Minutes.