Is Crowdfunding Free Money?

To finance a business or an artistic endeavor, many people have turned to crowdfunding to secure funding.  Crowdfunding is defined as “the funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”

Kickstarter is one of the most well-known crowdfunding platforms, but it is not the only one. Indiegogo and GoFundMe. Plus there are crowdfunding platforms that are for particular industries like PieShell for food and beverage industries.

Several friends of mine have created Kickstarter campaigns to raise funds for their projects, and I have supported them either by spreading the word and/or donating money. I have also consulted for an artist who needed help with promotion for their Kickstarter. Recently celebrities have used Kickstarter in order to fund films they want to make. They look to their fan base instead of studios for support.

Crowdfunding has led to the democratization of asking for money. Before crowdfunding sites, raising money used to be relegated to getting money from friends and family, applying for a loan or writing a grant (non-profit).

The current rise in crowdfunding for business has yielded concerns about the accounting treatment of those funds. Is it a gift? Is it income? It is unearned revenue?! Kickstarter used a reward based model of crowdfunding, where the backer receives a form of reward which may be of little value, and can even be akin to a donation. However, the backers cannot deduct the donation unless the Kickstarter is created by a nonprofit with a (501)c3 status.  Indiegogo now list equity offerings through First Democracy VC, a registered venture capital funding portal

Since moving to Savannah, I have heard about two successful Kickstarter projects, Big Bon Pizza and Paprika Southern.  Big Bon Pizza raised over $11,000 to build their wood fire pizza food truck. Paprika Southern over $6000 to print their southern women’s lifestyle magazine.

To answer the question, ‘is crowdfunding free money?’  The answer is no. Time is money. You have to put in a lot of time developing a campaign and detail the objectives of your project. If you are considering doing a crowdfunding campaign, make sure that you have time to promote your campaign and deliver rewards that people will enjoy.

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