What you need to know about Kickstarter, Indiegogo and the concept of crowdfunding

You have what you think is a cool idea, but you aren't sure if you can convince investors about the sales potential of, say, a tiny monitor strapped to your face, or a watch that is also a computer. Besides, who are "investors" and how do you summon them from their secret offshore lairs to pass judgment on your notional widget? Wouldn't it be easier if you could just put your idea on the internet, letting regular people who might be on your wavelength pledge directly to help get it done?

That's what crowdfunding is about. Services like Kickstarter, Indiegogo, Patreon and others gather funds directly from buyers, to make potentially crazy ideas a reality. Crazy ideas like a salad... made with potatoes. But it's not all free money and rampant innovation.

WHAT IS IT?

Crowdfunding sites allow project creators to post their ideas, with a certain timeline for completion, and a set monetary goal. For example, Oculus VR sought $250,000 over 30 days toward its goal of a development kit for its "Rift" 3D headset (it raised its goal in the first day, and finished with $2.4 million).

They all work a little differently. If a Kickstarter drive fails to reach the funding goal before the end of the (user-defined) fundraising period, nobody is charged and the fund drive fails. Indiegogo, however, allows creators to receive whatever money is pledged during a drive, even if it doesn't meet the minimum funding goal. The Breathometer, a noteworthy Indiegogo success story, didn't need to invoke that rule, as it well exceeded its $25,000 goal -– but even if only one person had pledged $1 toward a breathalyzer for smartphones, that lone person would have been charged (and probably wouldn't have received anything).

Patreon is set up for a different kind of funding altogether. Rather than pledging one-time payments toward a single goal, a Patreon drive seeks recurring pledges for an ongoing project. Project creators can ask for monetary contributions per video, per article, per month or per whatever unit makes sense for their project. Naturally, then, the service is popular among YouTube video creators -- in fact, it was co-founded by Jack Conte of the band Pomplamoose, best known for their YouTube presence. Both Conte and his bandmate Nataly Dawn use the service to fund their own music videos. Here's an especially crazy one:

HOW DOES IT WORK?

Creators design their projects and post them publicly, usually with a nice video, an explanation of the project and some of the risks inherent to the project (a requirement in Kickstarter's case, so backers can judge whether this person might be able to overcome said risks!)

Every project also has a list of rewards -- what you get for putting in different amounts of money. This is entirely up to the creator. Of course, with almost all projects, "the thing you're crowdfunding" is one of those rewards. But there are also fancier variants of the thing, or personalized things, or T-shirts, or making-of books, or whatever you can think of that might incentivize someone to hand over their money. Patreon rewards are usually serialized like the fund drives are, so rewards tend to be digital and include backer-only newsletters, chats with the project creators and early access to releases.

WHY SHOULD I CARE?

It's likely you participate in the world's economy in some way, both as a consumer and a producer, and crowdfunding has implications for both. In simpler terms, it's a new way to buy stuff, and to sell stuff.

For producers, it's a way for products or projects to exist that would not be able to before, and without as much costly infrastructure. You want to make an album, book, device or whatever, and so you ask for exactly as much as that costs (plus the costs of whatever rewards you're offering, as well as shipping, and you might consider throwing a tiny bit of profit in to make all this work worthwhile); if you get enough money, you make it and everyone who wanted it gets one. Now you have enough money to produce a run for direct sale!

For consumers, it means all kinds of new things are coming out that wouldn't have before, and you can take a more direct role in making that happen. Classic styles of video games from veteran creators are coming back left and right in the post-Double Fine world -- everything from Wasteland 2 to Shadowrun Returns to the PlayStation 2 music game Amplitude. Young entrepreneurs are getting their own inventions made.

Companies big and small are able to just put an idea out there and see how viable the world thinks it is. In broad terms: If it's worthy (and happens to get enough attention), the money will probably arrive.

To return to the world of video games, the developer Die Gute Fabrik launched a Kickstarter for its game Sportsfriends, a collection of four weird sports games for people to play with friends. Without online multiplayer, and in the case of the included game Johann Sebastian Joust (seen below), with no interaction with the TV screen, it seemed like a tough sell for game consoles. But publisher Sony and Die Gute Fabrik raised their $150,000 goal on Kickstarter, providing incontrovertible, numerical proof of interest. Now Sportsfriends is available on PlayStation 3 and 4.

Wing Commander creator Chris Roberts and his Roberts Space Industries launched a multi-tiered crowdfunding effort aimed at making Star Citizen a fully fan-funded game with a major publisher-tier budget. A combination of Kickstarter and the WordPress IgnitionDeck plugin allowed RSI to continue seeking stretch goals in perpetuity, as it approaches $48 million in funding. You can pledge funds to get in-game items like really, really expensive virtual spaceships.

And, thanks to Patreon, fans can directly support their favorite artists, allowing struggling freelance writers and creators to more easily create their art regularly. Full disclosure here: My own hand-held gaming news site, Tiny Cartridge, is Patreon-supported, allowing me to supplement my income with a writing gig I can do while my toddlers sleep.

HOW MUCH DOES IT COST?

If you're backing someone else's project, of course, the costs are completely defined by the project. Creators set their prices for each reward level, ranging from a dollar for a "thank you" or a credit on a special page, to thousands of dollars for commemorative T-shirts, posters and a personal dinner meeting with the creators -- plus the actual item you're crowdfunding, of course. People who put in an astounding $10,000 for the Double Fine Adventure Kickstarter drive got "lunch with [developers] Tim Schafer and Ron Gilbert, a tour of the Double Fine offices and all previous reward tiers" including original art used in the game, portraits of themselves, a signed hardcover book, a poster, a boxed copy of the game and a documentary.

Impossible to imagine someone sinking $10,000 into a single video game? Four people did that.

If you're trying to get your own project going, there are some costs beyond, you know, what it costs to make the thing. The crowdfunding services all take a percentage of the total: Kickstarter takes 5 percent; Indiegogo takes 4 percent (if your project hits its goal; 9 percent otherwise -- it's complicated); and Patreon takes 5 percent of every monthly take. In addition to that, you lose a percentage of your total to credit card fees (Kickstarter and Indiegogo take 3-5 percent depending on country, and Patreon takes "an approximate 4 percent.")

WHAT'S AT STAKE?

A few billion dollars, no big deal. Kickstarter, by far the most popular crowdfunding service, has seen over $1.2 billion pledged to its projects to date. Patreon creators have gotten more than $1 million through the service in just over a year.

WHAT'S THE ARGUMENT?

A great way to get lots of visibility for your nonexistent project is... also a great way to get a bunch of money from people and run. Crowdfunding backers can quickly learn what "professional" investors already know, which is that even if something has appropriate funding, it might not happen for any number of reasons. The ease of access of crowdfunding (you go to a website) means you're likely to run into amateurs. It may not be immediately apparent who has the know-how to actually finish a project, and who is just a kid with a cool, but impossible, idea.

It may be that someone didn't realize how much shipping would cost on all those T-shirts they offered as incentives. Or that the item they dreamed of making just wouldn't work. To see what happens when a Kickstarter doesn't work out, check this article about the programming-education game Code Hero, and this update for the comic Sad Pictures for Children in which the creator explains at length why he decided to just stop shipping stuff out. There's a happy ending for those Sad Pictures, at least, as Cards Against Humanity's Max Temkin has stepped in to take over fulfillment.

And those are all projects that were seemingly started in good faith. Kickstarter screens projects for potential fraud, and creators are required by law to fulfill their promised rewards or refund their backers, but there's always going to be an element of risk in putting your money down for something that does not yet exist. Really, think of it as betting that it will someday exist.

WANT TO KNOW MORE?

Kickstarter, Patreon and Indiegogo are all eminently browsable, with lists of current funding drives in various categories. There's even a Kickstarter film festival featuring crowdfunded films, and a collection of games made possible by the service.

But real talk: You want to see some really embarrassing crowdfunding drives, right? Well, that's what Kickfailure is for.

[Image credit: Shutterstock (Cash); Kickstarter (Oculus VR, Double Fine, Code Hero); YouTube (Pedals); Die Gute Fabrik (Sportsfriends)]

JC Fletcher is a freelance writer from Austin, Texas. When not spending time with his twin toddlers, he runs the hand-held gaming site Tiny Cartridge.