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Indiegogo Senior Director Defines the Nitty Gritty of Crowdfunding

In early October of 2014, two young Berkeley alumni aimed to raise $250,000 to take their innovative product – cat ear headphones – to the market by starting a fundraising campaign online. In one week, they had raised nearly $800,000. In six weeks, they had raised over $3.4 million, shattering their initial goal. Likewise, the Fidget Cube – a small cube with different buttons to fiddle with – started with a goal of $15,000 on Kickstarter. The project eventually garnered $6,465,690 million from 154,926 backers.

The age of only funding a start-up through personal savings or loans from family, friends, or banks may be over. With the current prevalence of social media, the process of raising funds for start-ups has been completely transformed. On Wednesday, Kate Drane, the Senior Director of Outreach for Tech and Hardware at Indiegogo, an international crowdfunding website, visited Northwestern to discuss the new online platform for raising funds that many new start-ups are using: crowdfunding. Drane elaborated on what crowdfunding and Indiegogo are and offered tips on improving campaigns for crowdfunding.

What is crowdfunding?

As the name suggests, crowdfunding is raising funds from the general public – typically small donations from many donors, and typically online. Different products are launched on websites like Indiegogo and those who are interested invest in the idea in exchange for incentives. There are two types of crowdfunding:

  1. Receiving Rewards Crowdfunding: This is the original form of crowdfunding, which both the Fidget Cube and the Axent Wear Cat Ear Headphones used. For this type of crowdfunding, the incentive for the investment is a physical reward, such as the product itself or a discount for some of the products or services.
  2. Equity Crowdfunding: In equity crowdfunding, the donors receive shares in the company in return for their early support.

How does Indiegogo compare to other crowdfunding companies?

One factor that differentiates Indiegogo and other online fundraising companies is that they help the entrepreneurs utilizing their site connect to manufacturers and retailers. For instance, Indiegogo connected the creators of the cat ear headphones to Brookstone, the retailer through which the headphones are now being sold.

Another unique selling point of Indiegogo is that it allows clients to choose between two funding options:

  • Fixed: The start-up will only receive the funds raised if they reach their goal. This is used when a specific amount of money is required to start the production.
  • Flexible: The start-up will take any amount of money regardless of whether or not they reach their goal because any amount of money will help start the business. Even though it may seem compelling to amass any amount, the start-up should carefully consider whether it has enough funds to provide the incentives to the backers.

(Image courtesy of: Chloe Yoo)

(Image courtesy of: Chloe Yoo)

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