Crowdfunding is a way to raise money for a small business or project through donations and investments from a large number of people. It’s an alternative to traditional business loans and can connect you with potential customers while you’re still in the fundraising stage. While crowdfunding has been around for years, dozens of crowdfunding sites now make it easier to reach an audience and raise money.
This in-depth guide covers crowdfunding sites and fundraising platforms, as well as step-by-step instructions for creating a successful crowdfunding campaign.
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Check if Your Idea Is Right for Crowdfunding
One of the most appealing features of crowdfunding is that anyone can do it. Most crowdfunding platforms let you create campaigns to raise money in a few simple steps.
Yet there are some unique challenges with online crowdfunding, and there’s no guarantee of crowdfunding success with only 22.4% of campaigns being funded. Putting in the legwork before starting your campaign can help increase the odds of meeting your goals.
To determine if crowdfunding is the best fundraising method for your idea, ask these questions:
- Do you have a business plan and product prototype? For a successful campaign, you must communicate details about your project clearly, so people understand what they are investing in and why. Having the details worked out is crucial so you can demonstrate to potential investors why your idea will be successful.
- What makes your product or service unique? The ability to articulate that will help you create a standout campaign that gets investors excited to fund your venture.
- Is there a demand? Most crowdfunding comes from people who want to purchase your product or use your service, so you need to know how many potential customers you have.
- How much money do you need? People have raised billions of dollars through crowdfunding. But the average amount raised by a successful campaign is $28,656. If you need millions of dollars, crowdfunding can be part of your fundraising strategy, but you shouldn’t rely on it for all your capital.
- What can you offer investors? Unless you’re running a donation-based campaign, your investors will expect something in return. Think about what type of enticing, deliverable rewards you can offer.
If you can answer these questions, you’re ready to create a crowdfunding campaign. If not, continue developing your idea or consider alternate sources of funding.
Select a Crowdfunding Type
There are four types of crowdfunding campaigns:
- Donation Crowdfunding: People give money to your venture out of a desire to support you and your small business without expecting anything in return.
- Rewards Crowdfunding: In return for their investment, backers get rewards like merchandise, exclusive content, discounts, and more.
- Equity Crowdfunding: Investors are rewarded with actual shares of the company in which they invest, based on how much money they invest. However, not all crowdfunding sites are equity crowdfunding platforms.
- Debt Crowdfunding: Otherwise known as peer-to-peer lending, this type of crowdfunding allows backers to lend you money, which you pay back with interest within a set timeframe.
Pick a Crowdfunding Platform
Below is an overview of our top picks for crowdfunding sites.
Campaign type: Rewards and donations
- 5% commission on total funds raised
- 3% + $0.20 per pledge transaction fee
- 5% + $0.05 per pledge under $10
No fees are collected if a project does not reach its fundraising goal.
Kickstarter is dedicated to funding creative projects that fall into categories like design and tech, arts, games, food and craft, comics and illustration, and music. Most fundraisers offer rewards, although backers can +donate to projects they want to support.
- Millions of visitors per month
- “Featured” opportunities, generating additional exposure
- “All-or-nothing” platform; if your project doesn’t meet its goal, all money raised is returned to backers
Campaign type: Rewards
- 5% commission
- Processing fees start at 3% + $0.20 per transaction (varies by location and currency)
Originally launched as a music-focused crowdfunding platform, Indiegogo has expanded to include project categories like education, health and fitness, productivity, transportation, film, video games, writing and publishing, and more.
It has also developed into a one-stop shop for entrepreneurs, offering campaign extensions, expert advice, and other services.
- Option for flexible or fixed funding
- Additional resources and support for starting a small business
- A high volume of successful crowdfunding campaigns can make it hard to stand out
Campaign type: Multiple (including equity crowdfunding and loans)
Fees: EquityNet does not collect commissions. Instead, fees are based strictly on the subscription you select.
- Premium DIY – $299 per month
- Full Service – $2,990 per month
EquityNet was the first business crowdfunding platform to launch in North America. With multiple patented technologies, the EquityNet platform helps entrepreneurs improve their business plans, organize documents, and match them with the most suitable of over 20,000 accredited investors.
Unlike competitors that accept fewer than 5% of companies that apply, EquityNet agrees with all legal and ethical companies.
- A variety of options to promote and manage campaigns
- Tools to create and improve business plans and manage all associated files and documents
- A large resource library helps navigate new terminology and legal language
- Doesn’t directly facilitate investments
Campaign type: Rewards
- Commerce – 5% plus processing fees
- Pro – 8% plus processing fees
- Premium – 12% plus processing fees
- Processing fees start at 2.9%+ 30 cents per transaction
With Patreon, creators can get ongoing support from backers rather than relying on one-time donations to meet a specific goal. It’s ideal for creative types like musicians, podcasters, visual artists, and video creators.
Patreon is also open to small business owners and nonprofit organizations ― anyone who can promise ongoing rewards in return for monthly payments from subscribers.
- Opportunities for ongoing financial support
- Varying account types, with additional resources for higher-tier accounts
- Not ideal for businesses with a limited amount of time to raise funds
Campaign type: Equity crowdfunding
Fees: Vary; fee percentage based on the total amount of capital raised.
If you want to give investors equity as opposed to other types of rewards, CircleUp may be your crowdfunding site. This business-oriented platform connects businesses with accredited investors who have a net worth of at least $1 million and an annual income of at least $200,000.
CircleUp and its equity crowdfunding model are ideal for business owners looking to scale rather than develop their ideas.
- Access to accredited investors with more money to invest
- Additional resources like credit financing and consumer marketing insights
- Businesses must typically have a minimum revenue of $1 million for inclusion on the platform
Campaign type: Debt
Fees: Vary; fixed loan interest rates range from 6.34%-35.89% based on the borrower’s credit and financial strength
Small businesses can get crowdfunded loans of up to $500,000 through LendingClub, which matches entrepreneurs with lenders interested in startup funding.
Applicants must be in business for 12 months or longer, own at least 20% of their business, have at least $50,000 in annual sales, and have no recent bankruptcies or tax liens.
- Small businesses can borrow amounts between $5,000 and $500,000
- Monthly payment amounts are fixed
- Companies must have annual revenue of at least $50,000 to be eligible for a small business loan
Plan Your Crowdfunding Campaign Page
Once you’ve selected a platform, it’s time to design your campaign’s crowdfunding page. Each platform has its specific campaign guidelines, so read them carefully before setting it up. It can also be helpful to analyze successful crowdfunding campaigns to determine what does and doesn’t work.
Choose a clear campaign title
Crowdfunding campaign titles should be clear and concise. Remember, your potential backers have thousands of projects to choose from and limited time, so you want them to understand your project as quickly as possible.
Overly clever titles risk being skipped because potential backers don’t know what you’re offering.
The three components of a good, simple title are:
- Your product or project name
- What your product or project is in plain terms
- What is unique or attractive about your product or project
For example if you are crowdfunding headphones that look like bunny ears, your answers to the above components could be:
- Looks like bunny ears
Put that together into “Hoppy: Headphones That Look Like Bunny Ears,” and you have a concise campaign title that lets users know exactly what your product is.
Create a video or written pitch
Your pitch gives potential backers more details about your project, why it’s essential and unique, and why they should give you money.
Your platform will guide whether you need a video or a written pitch. Regardless of the format, there are a few things you can do to strengthen your pitch:
- Be transparent: Creating a personal connection with potential backers is key to building trust and support. If you are making a pitch video, it is important for you to appear in the video or provide the voice-over. Make sure your voice and personal story come through in the copy for written pitches.
- Be clear and concise: People have short attention spans, especially on the internet, so make sure your pitch is clear and direct while providing all the information potential backers need.
- Be professional: While you don’t need to hire a video production company or copywriter, your video or written pitch should look and feel professional. Ensure the video and audio quality are good. If you’re writing a pitch, review it for spelling and grammar.
For further tips on how to make quality video pitches, visit these resources:
- The Definitive Guide to Explainer Videos
- The Best 5 Explainer Videos
- 10 Tips for Recording Better Video With Your Smartphone
Set a reasonable fundraising goal
If your fundraising goal is too low, you might not maximize your funding. Potential backers will see that you hit your goal and forgo contributing. However, if your amount is too high, it can scare off backers who think you won’t reach your funding goal.
These tips can help you set a crowdfunding goal that is realistic and achievable:
- Understand the campaign’s goal: Are you running this campaign to raise capital, or are you testing the market? Clarifying the campaign’s overall purpose can help you set a realistic goal.
- Determine your budget: Factor in costs like sending rewards to backers, platform and payment processing fees, and campaign costs like marketing.
- Create a realistic timeline: The length of your campaign can vary, but most experts recommend 30 to 60 days. Balance the amount you’re trying to raise with a reasonable time frame.
- Review similar campaigns: Is your goal comparable to campaigns for similar projects? How well did those other campaigns do in terms of meeting their goals?
Create Your Promotional Plan
The other essential element of a successful crowdfunding campaign is promotion. It doesn’t matter how amazing your pitch is — if no one sees it, you won’t meet your goal.
There are several ways to promote a crowdfunding campaign. Your promotional strategy should include as many of them as possible to maximize the viewership for your campaign:
- Email lists: As you developed your idea and conducted market research, you probably have gathered contact information for individuals interested in what you’re offering. This will give you an initial pool of people to notify about your campaign.
- Social media: If you haven’t already created social media accounts for your small business, now is a good time to do so. Your social media feeds can be used to promote your campaign and let backers share information about it with their social networks.
- Blogs and forums: Dozens of blogs and forums focus specifically on crowdfunding and can help attract potential backers outside your networks. Popular sites include the Kickstarter subreddit, Crowd101, and Kicktraq.
- Press: Pitch your campaign to local news outlets, including newspapers, blogs, TV and radio stations, and podcasts. Although you can’t control when you get press, try to time it near the beginning or close of your campaign for maximum effectiveness.
- Paid advertising: If you have some extra cash on hand, you can pay for ads on social media and other websites, in print, or on TV and radio, but it’s best to use all of your free promotional resources first.
Stay Active During Your Campaign
The launch of your crowdfunding campaign is only the beginning. While most of your funding will come in the first few and last few days of your campaign, promoting it throughout its entire duration helps successful crowdfunding projects.
This includes regularly posting about the campaign on your website and social media and seeking press coverage. Be careful not to post too often, however, as people can get fatigued from constant posts.
Keep your contacts informed of any notable news about the campaign through email blasts and blog posts.
As long as you are close to your goal ― more than 60% funded ― you will likely see a spike in pledges near the campaign’s end as backers who were originally skeptical see that you’ll likely reach your goal.
Deliver on Your Promises
According to an independent analysis, roughly 9% of successful Kickstarter campaigns never fulfill their promises. Don’t be one of them.
If you have rewards to deliver to backers, do so promptly. As you develop your product, keep backers updated on your progress. This will continue to build their confidence in you and your project, making them likely to invest more.
But be honest about your progress. If you hit delays or setbacks, be transparent about what you’re doing to address those issues. This way, backers know they can trust you to overcome any obstacles you may face.
If you fail to deliver, not only will you start your next funding campaign from scratch, but those initial backers won’t trust you. But if you communicate well and stick to your promises, those same backers will also be eager to fund your next project. Good luck.