Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals primarily online via social media and crowdfunding platforms and leverages their networks for greater reach and exposure.
Crowdfunding enables people with great ideas to raise the money they need, in return for ‘rewards’. The public can back your idea with pledges of money and project owners can ‘thank’ their backers with rewards that reflect the money contributed. Don’t worry we got some great reward ideas for you in our guides!
Just like there are many different kinds of capital round raises for businesses in all stages of growth, there are a variety of crowdfunding types. Which crowdfunding method you select depends on the type of product or service you offer and your goals for growth. The 3 primary types are donation-based, rewards-based, and equity crowdfunding.
Investments or donations are usually made through online platforms, which then coordinate and administer the fundraising.
While almost all the media attention for crowdfunding sites goes to mega platforms like Kickstarter and Indiegogo, there are hundreds of other crowdfunding and fundraising websites to meet your campaign goal. Understanding the fees and unique features at each will help you take full advantage of the boom in alternative funding.
Crowdfunding and Fundraising Websites
The largest crowdfunding site with more than 13 million visitors every month, Kickstarter hosts crowdfunding campaigns from comics and crafts to technology and Theater. The site does not allow campaigns for social causes so you’ll need a product or event to promote.
The platform has helped nearly 80,000 projects get funded with a strong community of repeat backers. Nearly 300,000 people on Kickstarter have backed 10 projects or more. About the biggest drawback for Kickstarter is that it only offers the all-or-nothing funding model which means that if you do not reach your funding target, you get none of the funds pledged.
Kickstarter collects a 5% fee for successfully funded projects. Payments are processed by Stripe which charges between 3% and 5% of the amount.
Similar to Kickstarter, except that here, you can raise funds for any project (so long as it’s legal), including donations for charity. This opens the crowdfunding site up to campaigns for personal finances, medical needs and just about anything. Kickstarter has gotten better about supporting international campaigns but I still hear from some campaigns that they prefer Indiegogo for raising money from international sources.
The flexibility and ease of international crowdfunding on Indiegogo has helped its popularity and campaign success is slightly higher at 44% compared to Kickstarter. The site receives upwards of nine million visitors per month.
Fees: Under the flexible funding model, Indiegogo charges a 9% fee on the funds raised. If you reach your goal, you get 5.0% back, for an overall fee of 4%. Fees for the all-or-nothing model are a flat 4% of contributions. PayPal or credit card processing is available with fees ranging between 3% and 5% of the amount.
AngelList is not necessarily a crowdfunding website but a platform for startups to meet investors, candidates and incubators. In the past, angel investing was one of the best forms of funding for startup companies, similar to venture capital, and was typically the first round of funding after friends and family. Angellist is an equity crowdfunding site where companies offer an ownership stake in exchange for funding. Click through to this post for more about how to find angel investors and raise money for your small business.
Fees: For Startups – No fees to receive an investment from a syndicate
For Backers – 5-20% carried interest per deal to the syndicated lead and 5% carried interest to AngelList
Out-of-pocket setup costs for each investment: $8K in the US and £8,300 in the UK
Cost: Investors pay a 10% carried interest to AngelList and a fixed setup cost.
Appbackr is one of the two popular crowdfunding websites for applications development. It aims to index the world’s apps, helping developers raise funding and to build attention around their apps and app ideas.
Developers can sign up and post their apps, whether they are still in development or currently for sale in a mobile app store. Backrs purchase wholesale copies on appbackr and makes a 26% profit when he backs an app. If the app is already available, funds are immediately transferred to the developer’s PayPal account. If the app is pre-launch, the funds will be available when the app is ready to be released.
RocketHub is one of the more popular crowdfunding sites after Kickstarter and Indiegogo and has a great support system with the crowdfunding site’s Success School series. The platform offers the flexible funding model where you keep any pledges made whether you meet the funding goal or not.
RocketHub has partnered with A&E Project Startup for a huge potential boost to campaigns. Campaign owners have the chance to be featured on television and on the A&E website, as well as featured in the channel’s bi-annual magazine.
Fees: If you reach your goal, 4% commission fee + 4% credit card handling fee. Fees for flexible funding if you don’t reach your goal are higher at 8% plus the 4% processing fee.
Fundraising websites and platforms account for a little over a quarter of total crowdfunding pledges each year. A few fundraising sites have become the standard for the group while others offer special features.
Choosing the best crowdfunding site or fundraising website is only one step of the process you’ll need to be successful. Crowdfunding sites have opened up a whole new world for small business and non-profit fundraising but you need to learn the process of promoting and managing your campaign to meet your goals.