Why Use Crowdfunding For Startups?
Crowdfunding for startups – ever heard of it? As one of the less traditional means for raising funds, crowdfunding is quickly gaining in popularity. You may have seen pages being shared on social media but did you know that startups and established businesses can also make use of crowdfunding platforms.
Let’s talk about crowdfunding for startups
- What is crowdfunding for startups?
- What are the 4 crowdfunding types?
- 6 of the best crowdfunding sites
- Crowdfunding as an investment source
What is crowdfunding for startups?
Crowdfunding platforms are available online to provide businesses and individuals to obtain funding. Startups, small businesses, nonprofits, and everyday people use these sites to connect with people who can offer support.
How does crowdfunding work?
Depending on the platform, you will need to register and create a profile as the first step. From there, you can go on to create personal campaigns or fundraising pages to tell the story of why you need funding and why people should help you. Depending on the platform, you could have your campaign up in a matter of days, with money beginning to trickle in. It is worth noting though that some sites have longer wait times or verification times.
What can crowdfunding be used for?
Crowdfunding platforms are more commonly known for personal use such as to help pay for medical emergencies, etc. However, over the years, small businesses and startups have been diving into the use of crowdfunding as a way to fund or grow their business.
What are the 4 crowdfunding types?
There are 4 basic crowdfunding types that you should become familiar with before embarking on a fund-seeking mission here. Depending on the type of funding you need, as in its purpose, there are specialised platforms that will cater to you.
This is where contributors are asked for relatively small amounts of money, in return for some type of reward from the startup such as one of their products, etc. This is a great way to raise money because the business’s “at cost” charge to send each investor the product upon release will likely be a lot less than the investors’ investment amount. Here, the investor gets a great deal if the business is successful – that’s it.
Reward-based crowdfunding sites include:
Here, the money contributed (usually small amounts) is not expected to be returned. Typically, the funds generated from this crowdfunding type is usually for a specific project. For example, to donate money to individuals or families suffering from some kind of loss. Money for a charity, or non-profit, can also generate much-needed dollars through donation-based crowdfunding. GoFundMe is one of the most popular donation-based crowdfunding companies.
Peer-to-peer businesses help facilitate loans by matching people or businesses needing money, with investors. This type of lending is also called debt-based lending. This is where applicants fill out online forms and the peer-to-peer lending facility provides a credit score to potential investors who are then able to decide whether or not to lend out their money. The investors receive their money back monthly, plus any interest, and in this way, they don’t own the business they are funding. However, there is a risk as the investor’s money is not protected by the government.
Some peer-to-peer lending organisations are:
This is a type of crowdfunding where investors take some ownership of the company, typically through shares. Generally, the original investment is not paid back but the investors will receive a share of the profits if the company does well. The amounts invested are not small, typically they start in the thousands. The rewards can also be much greater than a typical investment, but equity-based crowdfunding is also riskier because there is no guarantee of return. An example of this is OurCrowd.
6 Of the best crowdfunding websites
We’ve done some research to source a few of the leading crowdfunding sites that you can browse to get your startup off the ground.
We consider Indiegogo as one of the best crowdfunding websites overall. This platform allows you to set campaigns for up to 60 days for minimal platform and processing fees. Their tools allow for easy integration with Meta and Google and fast payment processing of around 15 business days.
SeedInvest Technology is ideal for startups looking for funding. Here, more than 600 investors help raise awareness among venture capital firms and angel investors to ease the process. As all startups go through a thorough vetting process, it is a good way to connect with legitimate businesses and investors. It’s as simple as filling out an application and completing the screening process.
Mightycause is best for nonprofits as it offers a free “starter” option, for raising money and creating a crowdfunding campaign year-round, that are peer-to-peer, event-related and more. There are paid plans that offer more features like branding and marketing, as well as donor management, for a fee. Nonprofits can raise funds for themselves or individuals are able to do it on their behalf.
StartEngine is a standout option for those looking to invest some money, for instance. This is a platform that allows everyday people to put your money directly into companies and startups, getting equity in return. Only needing as little as $10 to begin, it enables people to become investors in early-stage startups.
Probably the most well-known crowdfunding platform for individuals – GoFundMe. This platform provides the flexibility to raise money for yourself, a friend, or a charity 24/7. It provides expert support but generally has higher fees. You can set up a GoFundMe page in only three steps.
You may have heard of this one but the vast majority aren’t aware that Patreon is also a crowdfunding platform. While mainly used for artists and creative types like songwriters and bands, Patreon is gaining in popularity. It charges a processing and per-payment fee but has different tiers depending on your fundraising needs. All plans include the use of the Patreon mobile app, business tools, and more.
Crowdfunding as an investment source
When looking to crowdfunding for startups as an investment source for instance, rather than traditional routes like VC backers or angel investors, it harnesses the power of people. Whether a handful, hundreds, or even thousands of people contribute to your fundraising cause, it is a great way to start padding your startup’s finances.
However, some may feel that the more traditional route is better suited to their business model. Here, you’d be looking to angel investors or venture capital firms for financing. We go over how to find potential investors in a related post and have created an investor-pitch deck template with a free downloadable template.
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