Learn About Rewards-Based Crowdfunding

How Kickstarter and Indiegogo Made Crowdfunding Popular

Group of people working in team and brainstorming over start-ups
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Crowdfunding’s early success came from sites like Kickstarter and Indiegogo. While there are actually four main categories of crowdfunding, one of the most popular is rewards-based crowdfunding (the kind used on Kickstarter and Indiegogo).

Rewards-based crowdfunding has been a source of funding for small businesses. Businesses and non-profits of all sizes post projects on a crowdfunding portal, targeting a certain amount of capital to raise.

In return for a donation from fans of a project, the business or non-profit typically gives some type of incentive for participating (that's why it's called ​rewards-based crowdfunding).

History of Rewards-Based Crowdfunding

Though crowdfunding was brought into the mainstream consciousness with platforms like Kickstarter and Indiegogo, these certainly weren't the only sites to provide it. Here's a brief history:

  • 1997: According to crowdfunding website Fundable, the history of crowdfunding began in 1997 when U.K. rock band, Marillion, financed their reunion tour via ArtistShare, a fan-funding website.
  • 2006: Prosper, one of the pioneers in the peer-to-peer lending space, enables individuals to lend and borrow money outside of traditional banking channels.
  • 2009: Mainstream crowdfunding websites like Indiegogo are launched and the beginning of a new form of crowdsourcing financing -- crowdfunding -- is established.
  • 2011-2013: With crowdfunding in full bloom, President Obama passed the Jumpstart Our Business Startups (JOBS) Act in 2012. This paved the way for a real regulatory approach to protecting donors to crowdfunding projects and enabling businesses to turn to crowdfunding as a significant source of funding.

    Kickstarter is the largest rewards-based crowdfunding platform. According to the Kickstarter site, by the end of 2013:

    • Donors had pledged $928 million to projects on Kickstarter
    • 54,233 projects have been funded successfully
    • 5.4 million people have backed projects
    • 1.58 million people have backed more than 1 project
    • 12.8 million total pledges have been made

    Consulting firm Deloitte estimated that over $700 million would trade hands on rewards-based crowdfunding platforms.

    Popular Types of Crowdfunding Projects

    It turns out that while plenty of artists use crowdfunding to raise money for their activities, one of the most popular categories of crowdfunded projects is technology.

    According to the Economist, video games and other technology projects dominated Kickstarter's top 10 largest crowdfunding campaigns in terms of dollars in 2012.

    Gamers are tech savvy and have been early adopters of crowdfunding platforms, using them to fund ideas for new games and peripherals, like game controllers. Crowdfunders of gaming don't expect a return on their money and are glad to help promote programmers working on cool projects.

    How Rewards-Based Crowdfunding Works

    • A business, nonprofit, or entrepreneur posts a project available for funding on a crowdfunding platform like RocketHub with a set deadline
    • Frequently, special promotional videos are produced to help get backers interested in the project.
    • The founders of the project share the crowdfunding opportunity with friends and family
    • Interested backers donate to the project, sharing their activities over social networks
    • In return for backing a project, backers receive rewards based on the amount of funding they commit (defined by the business or entrepreneur behind the project)
    • If funding targets are hit before the project's deadline, the deal "tilts." Money is exchanged, and rewards are committed
    • Typically, within the months following a successfully funded project, backers receive their rewards (though research shows many of the rewards are late in their delivery)

    Laws are changing, making it easier and more popular to crowdfund projects. With ​the wind at their backs, crowdfunding platforms are expanding their product offerings and are more aggressively courting new users of all types.