The advent of the Internet has changed how people do business, and nowhere is this more apparent than in the industry of crowdfunding. Being more connected, better informed and more secure means that like-minded individuals can band together as a “crowd,” and ensure that the whole packs more punch than the sum of the parts.
In a nutshell, crowdfunding is the result of a whole bunch of people putting their money into a business, project, or product. The amounts can be anything from $1 to $100,000 and more, depending on the platform and the industry. So if you have a great idea for a business or product, read on to find the crowdfunding site that’s perfect for your needs.
Donations vs. Equity
The earliest and still best-known platforms out there are Kickstarter and Indiegogo. Each boasts millions of users and each has raised billions of dollars and been the start of the launch of highly successful companies. Many great ideas have gone from theory to reality with these sites, such as Oculus, which raised $2.4m and was subsequently acquired by Facebook for $2 billion, and “Exploding Kittens,” which raised $8.8 million through Kickstarter. These platforms work on the “donations” model, where money is crowdsourced, and in return, people who gave to the campaign get anything from a t-shirt, to special deals on the product when it is launched. Where Kickstarter and Indiegogo differ, is that Indiegogo allows nonprofits to raise on their platform while Kickstarter doesn’t. Another difference is that Kickstarter doesn’t let you keep the money if you failed to meet your financial goals, whereas Indiegogo offers “flexible funding,” which lets you keep money raised either way.
In equity-based crowdfunding sites, money is crowdsourced and in return, shares in the company are received. Big names in this area are AngelList and Crowdfunder. AngelList started out very much involved in the Venture Capital ecosystem, and was a later entrant into the crowdfunding world. To successfully raise funding on this platform, it helps to have a known lead investor on board or connections in the industry. Crowdfunder, on the other hand, is a more general platform, however it is still very much connected to the angel and VC arenas. Companies on this site have raised millions of dollars, and more importantly, have caught the eyes of some big names in the investment industry, opening even more doors for them down the line. Both AngelList and Crowdfunder have enabled companies on their platforms to have extremely successful exits.
Platforms Offering More Than Just Funding
Another well-known platform that has proven to be outstanding in terms of results, is RocketHub, which in addition to raising money, also provides you with articles and tools to grow a successful business. It’s more of a boutique service; you send your business idea and plans, RocketHub reviews them, and if relevant, gets in contact within 72 hours with additional information and options for raising capital for your business. It guides you throughout the funding process, which is a big plus - especially for first-time entrepreneurs.
For smaller businesses with a great idea, it’s definitely worth checking out Fundable. The platform’s goal is to encourage entrepreneurship and smaller businesses, and it has been highly successful in this regard, raising upward of $80 million. It’s known for its founder-friendly and hands-on approach, helping entrepreneurs through every stage of the fundraising process. Rounding out the equity-based platforms is CircleUp, which is primarily a consumer, product-based platform. It’s a great place to turn that brainwave into a product on the shelf, and millions in the bank. The platform boasts over 800 professional investors, and over $380 million raised.
Crowds for a Cause
Generally, crowdfunding platforms will take a percentage of the funds raised, which is usually between 1% and 5%. Considering the potential upside and exposure they provide, this amount seems quite reasonable. But besides raising money for a particular product or service, crowdfunding has been instrumental in supporting artists, creativity, and charitable causes.
Patreon, for example, uses a unique monthly subscription model to enable donors to provide regular support for causes, artists, or other “creators” that are dear to them. These can include podcasts, photographers, musicians who are looking for funds to publish a ned CD or even TV series. GoFundMe is another well-known name in the industry, that has put some really great causes on the map. Anyone can launch a GoFundMe campaign, and people can donate to them so that they can achieve their goals; be it running a race for a cancer foundation, raising funds for an emergency medical procedure, or even collecting money to support an 86-year old jazz drummer. GoFundMe has raised over $3 billion for various causes and provides easy setup and coaching to anyone who wants to start a campaign.
For a platform that has worked with some of the biggest names in nonprofit, such as Unicef and the American Red Cross, check out Crowdrise, which raises funds for anything from water projects in Africa to community events.
The Magic of Crowdfunding
Crowdfunding has changed the game, and resulted in some massive paydays for successful entrepreneurs that have raised money and made massive exits, not to mention making many investors very happy along the way.
Of course crowdfunding is not without risks, but in this super-connected world where geographical distances and inside connections are becoming less important, it exposes great ideas to large amounts of people and money - resulting in big wins for everyone.