Crowdfunding Basics: A Primer

Crowdfunding Basics

Here at GeekDad we write about a lot of crowdfunding projects—mostly on Kickstarter, but also on Indiegogo and various other platforms. We often assume you already know all about Kickstarter. But if you haven’t ever backed a campaign, you might not be familiar with crowdfunding works and what you should expect. Here’s a primer on what you should know before you pledge.

What is “crowdfunding”?

The basic idea is raising capital from individuals rather than from venture capitalists or by getting a bank loan. In most cases, there is a specific goal the project creator is trying to reach—whether that’s for a minimum print run for a board game, to make a movie, or to put a statue of Robocop in Detroit. The crowdfunding campaign has a certain amount of time to collect pledges toward its goal.

Kickstarter uses the “all or nothing” model: if the funding goal is reached by the time the campaign is over, then everyone gets charged for the amount of their pledge and the creator gets the money (minus some fees). If the funding goal is not reached, then nobody pays anything and the creator gets nothing.

Indiegogo lets the project creator choose between the “all or nothing” model or a “flexible funding” model. Your pledges are charged immediately—if it’s an “all or nothing” model, you get refunded if the project doesn’t hit its goal by the end of the campaign. For “flexible funding,” the project creator will get the money even if they don’t hit a particular goal.

Also note: on Kickstarter, you can adjust your pledge (or even cancel it) up until the last 48 hours of the campaign. At that point, you can only withdraw a pledge if that would not cause it to fall below its funding goal. On Indiegogo, pledges are essentially nonrefundable, and you would have to speak to the project creator directly about getting a refund.

There are other crowdfunding websites (with seemingly more launching every day) but Kickstarter and Indiegogo are two of the more well-known sites. For instance, indieFilmFunding is specific to independent filmmaking.

Why would I give some total stranger my money?

The short answer: rewards!

Now, in some cases your reward is simply the knowledge that you helped somebody turn a cool idea into a reality—you get a “thank you” on a blog somewhere or your name listed in the credits. But usually there are also some tangible benefits along with that sense of pride: board games, CDs, T-shirts, books, posters, and so on.

Many projects (including all of the board games Kickstarter projects reviewed on GeekDad) are product-based: the creator wants funds so they can manufacture some product, and your pledge essentially serves as a pre-order. If the goal is reached, they make the product and you’ve already paid for it. If there aren’t enough people interested in purchasing it, then the creator knows there’s not enough of a market and doesn’t spend the money to print it up.

So it’s basically a store?

Not really.

That’s the biggest thing to keep in mind: when you pledge to a crowdfunding campaign, it may feel like you’re just pre-ordering a product, but in most cases it’s not that simple. There are a few companies who have found that Kickstarter makes for a fine pre-built pre-order system, but in most cases you are pledging toward something that is not fully finished.

There are many different stages of completion—a board game, for instance, may be just a concept, or it might be a prototype that has been playtested hundreds of times, or it might be nearly ready to print with all the artwork completed. You should always check out the project page to find out what is and isn’t finished—that’ll go a long ways toward determining whether it’ll take 2 months or 2 years for the product to be delivered. Some authors will run a Kickstarter when they’ve just got an idea for a book; others may have a fully-written book and just want to raise funds to print it.

Somebody once said that backing a project is like paying now for the opportunity to wait 6 months for a mediocre product. Sometimes that happens. But the flipside is that sometimes backing a project is a chance to influence the course of a product that eventually winds up in stores. You might get your name in the credits, or your picture as a character in a game, or even design part of the rules. Sure, crowdfunding is primarily about the funding, but a lot of projects are now also crowd-driven, and being part of that creative process can be a lot of fun.

How do I know what to back?

We keep an up-to-date list of a few of our favorite projects on our GeekDad curated Kickstarter page, and we’re frequently highlighting crowdfunding projects that we think are worth some attention.

Our posts are about the concept, not necessarily the ability of the project creator to pull it off. So it’s also wise to do a little due diligence. A good concept doesn’t necessarily imply good business sense. Most projects are late; some projects completely fall apart even though they were successfully funded. Don’t pledge money you can’t afford to lose. Check out the project creator and see if you think they’ll be able to deliver what they’re promising.

A couple factors I often consider before backing a project myself: How many projects has creator done? Have they delivered on time? Has the project creator learned lessons that will improve future projects?

I also like to see: have the project creators backed anything themselves? If somebody’s first experience with Kickstarter is launching a project, I’m a little more wary that they may not know what it’s like to be a project backer. Most board game projects fall into the same pitfalls—if you’re a backer then these become familiar and you can address them in your own project. If you’ve never backed anything, you’re liable to make the same mistakes.

Also, don’t be afraid to back at $1 or just track the project for a while before committing to a bigger pledge.

What’s a “stretch goal”?

The idea of a stretch goal is that a project has a minimum funding amount before it can be viable at all—a minimum print run required for books or board games, or the cost to pay for filmmaking equipment, for instance. But if that funding level is exceeded, sometimes that means economies of scale can kick in.

Many project creators use those economies of scale to create additional goals that will happen at specific “overfunding” levels. Say, at $15,000 we can print a board game, but at $25,000 the production costs drop enough that I can now afford custom meeples or some extra cards. The stretch goals are a great way to maintain momentum and excitement for people who have already backed a project.

However, the more stretch goals a project has, the more likely it is that a project’s delivery will be delayed, because they may require additional work and production that wasn’t taken into account when the project’s original delivery date was set.

What’s an “add-on”?

These are sometimes related to stretch goals, but aren’t exactly the same thing. In many campaigns, you might get an a la carte selection of additional items you can add to any pledge. For instance, in The Doubleclicks’ Kickstarter project for their new CD, they had various pledge levels for digital downloads, physical CDs, and so on. But regardless of your pledge level, you could also add $35 for a T-shirt, $15 for a copy of the CD, or $10 for a pair of Doubleclicks dice.

Not all campaigns have add-ons, and if you’re a project creator they can be tricky to manage, but for things where you want to let people buy multiple copies of something, it’s an alternative to just making additional reward levels.

What’s the deal with international shipping?

Many projects on Kickstarter are from the US (though there are many other countries being added), and shipping costs within the US are fairly cheap compared to mailing things overseas. Each project is different, but in many cases there will be higher costs for shipping outside of the US—either listed as a separate reward level, or just with a note indicating that you should increase your pledge to cover shipping costs.

Some project creators have figured out ways to distribute their products from within the EU at lower rates, and you’ll often see the “EU-friendly” logo on these, denoting that shipping to the EU, at least, isn’t exorbitant. For now, it seems that US-based backers generally get the best pricing on projects, but I have see projects from other countries in which US backers will have to pay extra for shipping.

Just be aware that you should always check to see if shipping to your location is included in your pledge, or if you’ll need to add something to cover those costs.

Can I support charitable causes with crowdfunding?

Yes, but only on certain sites. Kickstarter doesn’t allow projects that are for charity, but Indiegogo does. There are also sites like GoFundMe or GoGetFunding that allow anyone to set up a simple fundraising campaign for any purpose, from helping somebody with medical or legal bills to just buying somebody a present.

Jonathan H. Liu is a stay-at-home dad in Portland, Oregon, who loves to read, is always up for a board game, and has a bit of a Kickstarter habit.