Crowdfunding is the newest way to raise money for startup capital. But not all crowdfunding is alike. Learn how to determine which crowdfunding platform is the best one for your business.
Crowdfunding has become the way to raise money for all kinds of projects in the early 21st century. Businesses, nonprofits, artists, and entrepreneurs of various stripes have all succeeded in running startup funding campaigns on one of the many crowdfunding platforms that have sprung up in recent years.
But crowdfunding isn’t as easy as simply signing up for a service and listing your financial needs. The first step is finding the platform that is just right for your business.
An Introduction to Various Types of Crowdfunding Sites
Like many other things, crowdfunding sites come in a lot of different shapes and sizes. There are crowdfunding sites for nonprofits and social causes:
- Crowdrise
- Rockethub
- Causes
These are just a few. There are plenty more.
Crowdfunding sites for independent artists and people spearheading creative projects include:
- Kickstarter
- Indiegogo
- Pubslush
If you want to start a business or find investors for your million dollar project, then perhaps one of these crowdfunding sites will be more your speed:
- AngelList
- Fundable
The JOBS (Jumpstart Our Business Startups) Act of 2012 has opened up thousands of opportunities for entrepreneurs who need money for their projects. Before, startups looking for financial backing had to request financial assistance only from their internal networks or through connections made while networking. They could not advertise publicly that they were looking for financial backing. That has changed, and the change has created a new culture of crowdfunding that is just getting started.
RELATED: Crowdfunding: How to Raise Money for a Product or Work of Art
A Survey of the Crowdfunding Industry
Crowdfunding is not just one class of individuals or set of organizations. It’s for everyone. In fact, many types of people from a variety of backgrounds have been successful in using crowdfunding to get the finances they need for their projects. This includes:
- Artists
- Small business owners
- Serial entrepreneurs
- Philanthropists
- Scientists
There are four basic types of crowdfunding. You should be familiar with each of them.
- Equity-based – These types of sites reward investors with a stake in the company.
- Donation-based – Contributions could be tax deductible and go toward funding a specific cause.
- Lending-based – Investors are repaid over time and may even be paid interest for their investments.
- Rewards-based – Contributors receive something tangible for their money.
Some crowdfunding sites specialize in a particular industry or niche, such as WeCANNA, a site geared toward funding cannabis startups. Other sites, like Kickstarter and Indiegogo, are more general in nature and help people fund a variety of types of projects. Others may offer two or more of the above types of funding in a hybrid approach. Gofundme is a crowdfunding site where people can fund personal needs such as medical expenses and educational goals.
RELATED: 10 Tips For Running A Successful Crowdfunding Campaign
How to Get the Money You Need Through Crowdfunding
The first step to successful crowdfunding is to define your project and fundraising needs. Are you looking for angel investors or do you wish to fund a single project of an existing business? It makes a big difference in how you approach your funding campaign, so start by defining your project. Then follow these steps.
- Determine how much money you need to successfully implement your project. Don’t just guess. Get real financial data by securing quotes from contractors you will be dealing with, bids on building materials, and sound financial information on all other aspects of your project before you start asking for money. It might help to create a business plan.
- Before you start, let your network know of your plans. Ask members of your network if they can recommend any sites. Ask them why they recommend that platform. Also, be sure to ask what incentives would make them invest in your project. That will let you know whether you should be looking at equity-based platforms or rewards-based crowdfunding sites.
- Research the crowdfunding sites to determine which ones are a good fit based on the types of crowdfunding they specialize in and whether they target a specific niche. Also, find out if anyone else has been successful seeking funding for similar types of projects. Which crowdfunding source did they use?
- Interview someone from each of the crowdfunding platforms you are considering. Ask good questions that will narrow down the sites to one or two good fits for your project.
Keep in mind that crowdfunding isn’t for everyone. It’s still new. The most successful projects are based on a solid plan. Know what you want out of a campaign before you start one, and know what you have to contribute to potential investors.
