Crowdfunding: The latest way to get your project funded

Sites like Kickstarter offer both established businesses and startups a chance to finance their dreams.

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Getting the word out

Innovators with a vision could seek funding on their own sites without relying on the Kickstarter engine, but doing so puts more onus on them and limits their reach. "Kickstarter is giving you a platform and destination for an audience," says David Greelish, who got funding for a computer history book through Kickstarter.

By using Kickstarter, project creators can focus on promotion rather than building their own crowdfunding mechanism. Kickstarter does help: It gives potential investors a way to browse through projects they might be interested in, and projects are occasionally featured on the site's email list and Facebook page. "They provide a really nice backend for interacting with your investors," says Jason Scott, ticking off the ability to post backer-only updates, export backer data for later use and more.

But once a project is launched, it is primarily the responsibility of its creator to get the word out. Press releases, Facebook, Twitter and word of mouth are invaluable. The best promotion may be the creator's own reputation. "It really helps for [Kickstarter] to be the last chapter [rather] than the first chapter in people knowing you," says Scott.

The ability for a known company to raise funds via crowdsourcing was demonstrated in February by Tim Schafer, a video game developer with decades of experience. When Schafer decided to bypass the traditional route of acquiring startup capital from a publisher for his next game, his company, Double Fine, turned to Kickstarter for funding. It received more than eight times the hoped-for $400,000.

The big-name projects don't necessarily intercept dollars that could be pledged elsewhere. Of Double Fine's 87,142 backers, 71% were first-time Kickstarter users and 15% pledged an additional $877,000 to 1,266 other projects. Online newscaster Checkpoint reported that in the two months before Double Fine's adventure, 15 games were funded on Kickstarter for a total of $169,000; in the two months since Double Fine began asking for Kickstarter funding, $4,276,391 was poured into 34 "indie" games, not counting those from storied developers such as Interplay founder Brian Fargo, who is creating a sequel to the Apple II game Wasteland.

There are other ways that project owners can get attention. They can now connect their Facebook accounts to Kickstarter, to be notified when their friends back projects, improving their discoverability. And Brian Fargo has created an unofficial "Kicking It Forward" program, in which project creators can opt to pledge 5% of profits derived from successfully crowdfunded projects back into Kickstarter.

The future of crowdsourcing

Kickstarter requires project creators to be permanent U.S. residents and at least 18 years of age with a Social Security Number (or EIN), a U.S. bank account, U.S. address, U.S. state-issued ID (driver's license) and major U.S. credit or debit card. Because of this, Andrew Russell, a software developer in Australia, used RocketHub to fund a tool to ease porting games from XNA (Microsoft's game development framework) to other environments, such as iOS. "It's still impractical for someone outside the United States to use Kickstarter as a creator," Russell says of why he chose RocketHub.

Russell's open-source project successfully received more than the requested funding, but he still sees ways for the crowdfunding model to grow. "One idea that I think would help is the ability to set multiple goal thresholds," he suggests.

Many Kickstarter projects unofficially use this model; project owners will offer extra benefits for more funding, such as adding more platforms and languages if more money is raised.

Crowdfunding will soon be an option for even more entrepreneurs. The JOBS Act, signed by President Obama on April 5, will turn crowdfunding into a source of capital for small businesses.

Whether you're a small business owner, an entrepreneur or an independent artist, Kickstarter and its competitors have become a valuable and valid way for anyone with an idea with uncertain marketability to test the waters. Says Scott, "If you think of a project where $1,000 makes a difference ... then Kickstarter is a no-brainer."

Next: See our slideshow, 9 interesting tech projects from Kickstarter.

Ken Gagne covers Macs, retrocomputing and electronic entertainment. Follow Ken on Twitter at @IDGagne, read his Computerworld blog, or subscribe to his news and features RSS feed.

Copyright © 2012 IDG Communications, Inc.

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