What is crowdfunding?
Over the past couple of years, crowdfunding has become increasingly mainstream for business ventures. Crowdfunding is a fundraising concept for ventures by soliciting donations from people on the internet. You can use crowdfunding for everything nowadays, from raising money to start your company, for causes you believe in or artistic projects you’re working on in exchange for perks, rewards, and products. It is also a great platform to attract investors, and thanks to Obama’s JOBS Act, investors are now allowed to receive a share of your company if you become successful.
Tanya Prive of Forbes said, “In a seemingly nonstop recession wave, small businesses are struggling more than ever to stay afloat, and entrepreneurs are not facing great odds. Crowdfunding offers these individuals a chance at success, by showcasing their businesses and projects to the entire world.”
It is said to continue to expand over the next 5 years, so it’s no wonder it has been a popular source for capital. There are some precautions, however. Researching your different platforms is absolutely necessary before you get started; it is not as easy as setting up a social media account, as some sites will make you go through a process of approval, regulations, and fees. Be sure to keep in mind that the idea behind crowdfunding is not “what” you do, but “why” you do it.
With the hundreds of sites available for crowdfunding, each one is tailored with its own unique spin. If you are a business company, you would not use the same site as a film company creating a documentary. Here’s a list of a couple that may help you find your way.
Small Businesses
Fundable
- Mainly for startups
- Utilizes an all-or-nothing fundraising model (meaning you must meet your goal in order to collect your funds)
- For equity, all commitments are processed offline after the close of the fundraising
- Free to create a profile but $179/month to fundraise
- No success fees—meaning they do not charge any fees if you succeed, so you only pay one flat fee per month.
- Rewards fee of 3.5% plus $.30 per transaction
Crowdfunder
- A network of active investors, entrepreneurs, and advisors.
- Focuses only on exchange in equity
- Flat monthly fee to fundraise: $99 for Crowd plan, $299 for Angel plan, and $999 for Super Angel plan
- A success fee of 5%
- Fee for Amazon payments of 2.9%
- $.30 per transaction
Creative Projects
Kickstarter
- Reward-based
- All-or-nothing
- Must be 18 years old or older, must have DL, bank account and major credit or debit card
- Projects must have goals and must fit their guideline criteria and will be put under review for approval
- Max duration is 60 days, max reward value is $10,000
- A success fee of 5%
- Fee for Amazon payments vary 3%-5% based on the transaction amount
- No fee for unsuccessful funding
IndieGoGo
- Reward-based
- No project review
- If you reach your goal, you keep funds you raised with a charged fee of 4%, nonprofits are 3%
- If you don’t reach your goal, you still keep your funds but charged 9% of raised funds (under Flexible Funding). Fixed Funding allows your contributors to be refunded and you won’t get charged any fees
- A processing fee of 3%-5% depending on your payment options
- Great for nonprofits
Causes
Crowdrise
- Fees dependent on monthly account
- Credit card fees are 2.9% + $.30 per transaction
StartSomeGood
- All-or-nothing
- 90-day maximum
- A success fee of 5%
- Payment processor fee of 3%
Here is a creative map for even more options on choosing a crowdfunding website.
We live in an egocentric society nowadays, so the best way to launch your campaign is to be unselfish and smart about your strategy. Do not be greedy! Start your goal out at the minimum you need. There’s always a chance your campaign won’t take off as high as you expected so aim low for your goal. Also think about the person you’re trying to target, understand the industry, and aim at their interests.
