Starting a business is a big decision, and we couldn’t be any more excited for you!
You have a plethora of options when it comes to small business or startup funding: Traditional lenders, alternative lenders, grants, and then there’s another thoroughly modern way of getting funds — online crowdfunding.
So, what is crowdfunding? How can it help you launch your small business? That’s what we’ll discuss in this blog post. Stick around to learn about crowdfunding, tips for crowdfunding success, and the top ten crowdfunding sites for small businesses and startups.
Crowdfunding your small business
Crowdfunding “is the use of small amounts of capital from a large number of individuals to finance a new business venture.” A big issue with traditional lending methods is that it can be incredibly hard to receive the capital you need to succeed. Unless you have proven success in business, positive cash flow, and great credit history, banks aren’t likely to approve your loan requests.
Crowdfunding is a great answer to this problem as it allows you to get backing from friends, family, established investors, and complete strangers who believe in your business. Crowdfunding has really democratized the world of small business and startup funding.
Before starting a crowdfunding campaign, it’s important to note that on many sites (but not all), if you don’t meet your crowdfunding goal you won’t receive the funding. That said, here’s how you can boost your chances of meeting your crowdfunding campaign goal.
Tips for crowdfunding success
A great business idea alone won’t help you get the crowdfunding results you’re seeking. We’ve put together the following tips to increase your chances of running a successful crowdfunding campaign so you can fund your business.
Preparation and planning
Crowdfunding isn’t a shortcut to launching a business, and people are wary of investing in half-cooked business ideas as they’re too risky.
Review successful crowdfunding campaigns
Time is money, don’t waste yours by reinventing the wheel. Instead of striking out alone, look to other crowdfunding campaigns to find what worked and what hasn’t, focusing on campaigns in an industry similar to yours.
Can you find any similar traits among successful campaigns? Perhaps they offered equity stakes in their small business or offered big rewards to initial investors. How did they present their campaign? Did they use lots of images and videos to convey their message and appeal? After reviewing these campaigns, you should start to notice common themes and elements.
Familiarize yourself with the Terms & Conditions
It’s your responsibility and in your best interest to review different crowdfunding sites’ terms before utilizing them for your campaigns. Each site has its own billing policies or ways of collecting revenue, some sites may prohibit certain industries, and others may have certain age requirements in order to use their services. As you review, you may find one site’s terms more agreeable than another’s.
Be your own PR person
When it comes to crowdfunding, you are your biggest advocate. If people don’t know about your business and crowdfunding campaign, how are they going to invest in it? Here are a few ways you can work on your business and brand awareness:
- Create a website.
- Where should people turn if they need more information about your business? Creating a website establishes your digital presence and not having a site is pretty inexcusable these days. If you don’t have a product or service to sell yet, focus on your “About” and “Contact us” pages. If you’re really serious, create a “Press” page that offers images and information that journalists and others can use in their features.
- Your domain name should be relevant.
- Help motivate people to visit your site by making your domain name short, memorable, and relevant. If the .com you want isn’t available, don’t panic — there are multitudes of available TLDs for all sorts of industries. Can’t find the .com you want for your new yoga studio? Try the .yoga TLD. Is the domain you chose for your e-commerce store unavailable? Try .store or .online.
- Leverage the power of social media.
- Social media is a form of social proof and helps you build your brand while keeping you in touch with potential investors and customers.
- Encourage your friends, family, and followers to share news and posts about your business. It’s called social media for a reason — networking is essential!
You want people to know about your business so it can gain traction and get funding, so don’t be shy in promoting it and your crowdfunding campaign.
Back your campaign before it goes online
Being the first person to do something can be nerve-wracking, and that includes being the first person to back your crowdfunding campaign. However, it’s easier to justify doing something when you see that others are doing it, too. Use this to your advantage by having some investors already lined up before your crowdfunding campaign goes live.
You don’t need professional angel investors — having some friends and family willing to donate at the beginning of your campaign works just as well to lend credibility to your business idea.
Add a little character
Every good campaign uses facts to help support the appeal, but the great ones know that emotions matter, too. When a person finds your crowdfunding campaign, what do you want them to feel? What emotions should your campaign elicit? Excitement? Desire for your product? Write your crowdfunding appeal to influence the emotions you want someone to feel when reading it.
Show the people behind the scenes making it happen. Your investors want to know about the team that’s turning ideas into reality just as much as they want to know about your business. Ideas are great, but it’s the people that make them happen.
What are the different types of crowdfunding campaigns?
Crowdfunding campaigns can be broken out into four main categories:
- Donation – when people donate money to your crowdfunding appeal and are promised nothing in return.
- Debt – any money pledged by your supporters is paid back (usually with interest) by a certain deadline. This is a lot like a traditional loan.
- Rewards – in this scenario, you promise a certain reward based on the amount of money someone pledges to your crowdfunding campaign. You can offer services or products as rewards to entice people to donate funds. Consider offering different reward tiers with corresponding pledge tiers. For example, you can offer one reward to people who pledge between $10 – $100, a better reward for people who pledge $101 – $500, and so on.
- Equity – this is exactly what it sounds like. When you perform an equity crowdfunding campaign, you’re giving an investor a percentage of ownership in your business in return for funding.
Top Crowdfunding Sites
Since launching in 2010, GoFundMe is one of the most widely-used crowdfunding platforms. They describe themselves as the “world’s largest, free social fundraising platform.” However, one thing to note is that the platform is only free for campaigns in certain currencies and countries. Also, they apply standard transaction fees to debit and credit card transactions.
Unlike some other platforms that return funds to donors if you don’t meet your goal, GoFundMe allows you to keep whatever amount you raise. With “over $9 billion raised from more than 120 million donations,” you should take the time to review the platform to see if it’s a good fit for your needs.
Do you have an innovative product or service that you know will make a difference in your industry? Kickstarter is a crowdfunding platform that helps “make ideas into reality.” Their mission is to “help bring creative projects to life.” This crowdfunding platform launched in 2009 and since then $5.3 billion has been raised for different projects with 188,101 of them being successful.
Kickstarter is all-or-nothing. If you don’t meet the funding goal for your project then your financial backers won’t be charged for their pledges and you do not receive any funds. Kickstarter charges a flat 5% fee from the funds your campaign collects, but only if it’s successful. If a project doesn’t reach its goal then no fees are charged. Also, they charge a standard payment processing fee of about 3%-5%.
According to their website, “Indiegogo is where early adopters and innovation seekers find lively, imaginative tech before it hits the mainstream.”
Indiegogo is both a crowdfunding platform and a marketplace. They help small businesses and entrepreneurs take their ideas from concepts to reality and even help you ship your products. They provide services and resources, including access to key partners for the duration of your project. Unlike some other crowdfunding sites, Indiegogo is there to support you for the lifecycle of your campaign and project. Since its launch in 2008 Indiegogo has successfully helped entrepreneurs bring over 800,000 ideas to life.
They charge a 5% platform fee, and that amount is based on the amount of funding you raise, not your ultimate project goal. They also charge a standard payment processing fee that’s dependent upon your location and currency, though it appears to hover around 3% for many currencies.
Crowd Supply’s mission is to “bring original, useful, respectful hardware to life.” Like Indiegogo, Crowd Supply is dedicated to helping entrepreneurs from funding to delivery, and 100% of funded projects have been delivered to backers. They’ve got a great success rate, too — 70% of launched projects have achieved funding.
When you bring an idea or product to Crowd Supply for backing, you’ll see two “Launch Plan” options: Basic and Standard. Here’s how they differ:
Patreon exists to “change the way art is valued.” Over 200,000 creators use Patreon to allow their “most passionate fans [to] support [their] creative work via monthly membership.”
To use Patreon you establish a monthly subscription rate (you can create tiers) for your fans and followers. When that amount is paid, they receive exclusive access to your content. Your supporters join a community that supports you and receive a behind-the-scenes look into your creative process. Patreon allows you to make recurring income — it’s not a one time backing or funding for your creative pursuits.
Like Crowd Supply, Patreon has different pricing based upon the plan you choose:
Crowdfunder is a place “where entrepreneurs and investors meet.” When you choose to use Crowdfunder you’re joining a community of over 200,000 members and 15,000 accredited investors.
This site is based around equity crowdfunding, meaning that you’ll need to offer an equity stake in your business in order to receive funding. Like most other crowdfunding sites, Crowdfunder offers resources to help you create the perfect crowdfunding appeal.
They also offer a few plans at different price points:
CircleUp allows you to create two types of crowdfunding campaigns: equity and credit. They are selective about the businesses they work with, but if you make it through their approval process then you’ll find an array of services available to you.
CircleUp focuses on helping small businesses find the right investor. Many traditional funding and loan opportunities aren’t made available to small businesses, and so they seek to fill the gap, primarily focusing on consumer brands.
Before you can start using their services, you have to apply here.
Fundable is designed around business crowdfunding, and they’re “dedicated exclusively to helping companies raise capital.”
The team at Fundable takes a hands-on approach to help customers, “from profile creation to marketing, [they’re] there at each step.” To date, people have committed $615 million in funding on their platform.
It’s free to set up a company profile on Fundable, and a flat fee of $179 USD per month to fundraise. If you choose to run a rewards-type campaign on their platform then there’s a standard credit card processing fee charged by WePay, their payment processor.
Republic recognizes that “many startups’ success depends on their ability to get funded.” They built Republic to address that, and their “funding portal and broker dealer are SEC-registered and members of FINRA.” And they support diversity. “25% of investments on Republic have gone to companies with underrepresented founders of color and 44% have gone to companies with a female founder.” The industry average is 1% and 13%, respectively.
As an SEC-registered business, their cost and pricing structure is a bit different from other crowdfunding sites. Find out more about how much it costs to raise money on Republic here.
Wefunder has helped fund 451 startups and raised over $164.5 million. They’re the self-described “Kickstarter for investing,” the difference being that Wefunder lets people invest in your company with small ownership stakes whereas Kickstarter allows you to sell products. Right now, Wefunder is only available to businesses and startups located in the United States.
They don’t charge any up-front fees and offer to price match if you find a better offer elsewhere. Wefunder collects 7.5% of your total fundraised amount if your campaign is successful.
Ready to crowdfund your small business funding?
Crowdfunding is a great and thoroughly modern way to find and raise capital for your small business.
There are a multitude of crowdfunding sites, many of which cater to specific industries and products, so don’t despair if you didn’t find a perfect solution in the list above.
If you’ve run crowdfunding campaigns before, share your best practices with us in the comments below!