What Every Startup Needs to Know About Crowdfunding

In 2009 it became popular for entrepreneurs to finance their new ventures and gain access to people who were willing to give out small amounts of money to support their ideas.

And in 2012, the very first online crowdfunding platform emerged. Fundable created a community of entrepreneurs looking for validation and funding of their ideas. People could use this platform to invest in ideas that they believed in.

 

fundable-logo Fundable, the first ever crowdfunding platform | Photo from fundable / CC BY 2.0

 

Crowdfunding has now become a method start-ups use to finance new businesses by collecting small amounts of money from people around the world on a single online platform. This wide public audience consists of accredited investors and people who are unattached from any company or investment firm.

Crowdfunding is different. It is unlike the conventional method of giving high amounts of equity shares to investors. Through crowdfunding, the company doesn’t necessarily have to share ownership.

 

types-of-crowdfunding

Depending on the fundraising type, investors can get different benefits or none at all. There are four main types of crowdfunding. Donation based, reward based, and equity-based crowdfunding, and an initial coin offering.

Donation-based crowdfunding

Donation-based crowdfunding is usually not connected to the entrepreneurial world. You can use this option to collect money for personal purposes. More recently, Facebook has been more involved in charitable funding, collecting on a large scale.

crowdfunding_facebook Photo from Techstar / CC BY 2.0

 

These donations are philanthropic covering expensive surgeries due to medical conditions, charitable organizations, schools or helping people in developing countries. In this case, the investors or contributors receive absolutely nothing in exchange for their money, other than the gratification of doing a good deed.

Goodworld is a startup that wants to transform the donation process into an easy three-step process. The first step is for the person to reply or comment with #donate on social media, and a pop-up screen will appear with a sign-up form that only requires your credit card details and your name. Fast and easy.

Rewards-based crowdfunding

This type of fundraising is primarily made up of startups in the pre-sales stage that are looking for validation of their product or service. The investors are incentivized to donate more and earlier in return for a reward.

The rewards can vary depending on the business type. Contributors can receive smaller gifts as a gesture of goodwill. For instance, “donate $50 and receive a branded t-shirt, mug, pen and poster.”

Many Kickstarter campaigns include more elaborate gifts for a bigger donation. For example flying out to meet the founders, a chance to get a “shout-out” on their website or a press release.

You can get wild, creative, and gimmicky with your incentives. An example is the anime movie called “In the Name of the Moon: A Sailor Moon Documentary”. The movie makers offered to put the name of the backers in the credits if they donated more than $5.

What most investors are looking for in this category is early access to your product or prototype, as they are usually classified as early adopters.

There is seldom a financial return for the investors (outside of receiving the product itself) with these campaigns, but they can be rewarded with equity if they donate significant amounts. This means there’s a minimal risk other than not delivering on your reward based promises.

   Photo by Bristly / CC BY 2.0

 

An example is Bristly on Kickstarter. Petros Dertsakyan created a specially designed toothbrush for dogs. In return, the backers received early access to the product.

In this case, the more you donate, the more you get. The biggest package includes 48 brushing sticks for a minimum donation of $349. The campaign is very successful and dog owners absolutely love it. The project managed to exceed the $15.000 goal by receiving $263,990 from 6,178 backers.

Equity-based crowdfunding

There's a stigma that those investing in startups belong to the white collar community, and those with a high disposable income. But in reality, anyone is now able to take part in the financing of a startup.

Equity-based crowdfunding opens a path for individuals to invest money in a company that they believe in. In exchange for money, they get the right to obtain equity shares in your company. These are considered investments (albeit risky) since there is potential to make a profit or lose all the capital invested.

It is the perfect way to build a bridge between people and companies. This type of crowdfunding allows people to join the journey of a startup and be part of the change.

Apex-Farm-Photo Apex Farm in operation| Photo from crowdlistIQ / CC BY 2.0

 

Apex Farms is a startup creating a vertical farming system to give farmers the opportunity to produce more and reduce water usage by 75%. They posted their campaign on MicroVentures, and investment platform specially created for equity-based crowdfunding.

The minimum investment for Apex Farms is $50,000, which covers the costs of raw materials, building material, labor, different fees, and marketing. They currently succeeded in raising $207,000 from 659 investors.

This suggests that people need to invest a higher amount of money in order to receive shares of the company. Besides financial returns, the investors also have early access to the product.

ICO: Initial Coin Offering

The concept of cryptocurrency is becoming more popular and is acknowledged as a major game changer for investment and banking in the future. It is a new method of payment and can be used for funding projects.

This new way of raising funds is called ICO and it is mostly used by startups. They create a cryptocurrency and instead of taking traditional currency donations, they accept other cryptocurrencies in exchange, usually Bitcoin or Ethereum.

bitcoin_image Photo from Bitcoinist / CC BY 2.0

 

This method is both a rewards-based campaign and equity-based campaign. The backers receive the cryptocurrency, called tokens, instead of shares.

Many investors consider this approach risky, as there is no guarantee the tokens will rise in value over time. The regulations are very limited, which brings another risk of the company disappearing overnight with your tokens.

Energy Premier is a startup that generates “a faster, cheaper, safer way to trade electricity”. Their token is called EPC (Energy Premier Coin) and it is sold for a minimum of 0,1 BTC (Bitcoin) or one ETH (Ethereum). One EPC is worth $0,0003. This token enables customers to trade electricity on a platform where an electricity bidding session will take place, starting from September this year.

why-your-startup-should-go-crowdfunding

Crowdfunding for business start up can be a less risky way to gain investment, as you’re not losing ownership of the company through equity shares. You’re instead gaining funding without having to give away shares of your company to every investor. However, in the case of equity crowdfunding, the rules change. You’ll still have a group of people funding your private company, but investors receive equity in return. Depending on the country you are in, the regulations on equity crowdfunding differ as it is subject to securities laws.

Testing the market

It allows your startup to find accredited investors or regular individuals that believe in your ideas and are ready to invest their money. Not to mention how easy it is to test your product right before launching.

It is essential to make sure, before penetrating the market, that your idea is going to sell. When choosing a crowdfunding platform, people are able to ask you questions, give you feedback, and help you with your idea. Getting a chance to talk to your potential customers prior to scaling is invaluable.

Once you’ve curated and tested the market you can use the information to form more accurate buyer personas, get better targeting within marketing channels, and continue to test new markets and ideas.

Marketing insights and buyer personas

Testing the market first gives you insights about buyer behavior. Based on this information you form a clear picture of how your potential customers perceive your idea.

If they have a hard time understanding it or don’t show interest, it may be time for pivoting. With their help, you can further shape your product into one that is going to sell.

Many startups use this method as a testing ground to better understand the market, and a first step to building a PR machine.

Build a community of evangelists

You are bringing in a pool of people who believe in your idea and will support it throughout the process. These people are more likely to invest in your future ventures as well.

Nonetheless, they are a good source of marketing your product on other channels that you don’t have access to. Word of mouth spreads easily and soon you will find your venture reaching the media.

why-people-get-involved

Why do people voluntarily spend their money on crowdfunding ventures? And what are they getting out of it if they are not accredited investors who get equity shares? There are many reasons.

Diffusion of innovation

Diffusion of innovation is a communication process and it shows how innovation spreads. People are divided into categories based on how early they embrace a new and innovative product or service.

Innovation_Curve

Early adopters love having the chance to participate in something new, something that might be cutting edge. These are the people that believe in your idea from the very start before it gets popular. If they find your product interesting, they want to make sure they get early access to your product/service and will donate in exchange for a prototype.

The perfect example is people waiting in line for days for the new Apple products to launch. They go the extra mile in order to make sure they will have the first taste of the latest technology.

 

The Late Majority and Laggards are the people who wait a long period of time to adopt a product. They need extensive validation and insurance before investing their money.

Diffusion_of_innovation

Like-minded problem solvers

There are people who feel part of a community, or a relation in some way to the entrepreneur. When empathy is involved, people tend to feel sensitivity towards a cause and donate money to a cause. This act brings people a sense of fulfilment and involvement.

They are also donating because they have a relevant desire to solve the same problem or they simply just love the idea and want to see it succeed.

how-to-start-your-own-campaign

The first obvious step is choosing a crowdfunding platform that suits your product, service, or needs. There are numerous online platforms that give you the opportunity to build a profile and raise money from anyone around the world.

The best online crowdfunding platforms

Invesdor  
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Invesdor is a Scandinavian crowdfunding platform that operates in Sweden, Denmark, Finland and Norway along with United Kingdom. Its main offices are situated in Helsinki and Stokholm where companies are able to get assitence and find investors from all over the world.

Established: 2012
Number of campaigns: over 4,000
Contact e-mail: info@invesdor.com
Kickstarter
kickstarter-logo-150x150

 

One of the most popular platforms that has been used by million of users is Kickstarter. This platform helps to develop creative ideas of people that need funding for making their start-ups real. By funding investors are able to get benefits from chosen projects, raise money or even get some gifts from developers.

Established: 2009
Number of campaigns: over 400,000
Contact e-mail: support@kickstarter.com
Indiegogo  
IGG_Logo_Frame_GOgenta_RGB-2-acdbed8c9b7f24c740e03f2e3fd13f60750a6ccb3817414df4f00a90d518d960-150x150

 

Indiegogo deals with innovations offered on the online marketplace where users get funding from investors that are interested in realization of the idea but unlike many others platforms idea creator is allowed to keep raised money even if he/she failed with reaching the final goal.

Established: 2008
Number of campaigns: over 600,000
Contact e-mail: info@indiegogo.com
Patreon  
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Patreon is a unique platform where subscribers donor a particular amount of money each month to support their favourite artists, singers, podcasts etc. Patreon keeps 5% of donations for maintaining its web-site.

Established: 2013
Number of campaigns: over 100,000
Contact e-mail: hello@patreon.com
GoFundMe
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GoFundMe focuses on gathering money from people to help those who need help because of some accident, emergency situation in a view of donations and charity payments. Besides, platform deals with business development as well, volunteering and with other areas mentioned in the official web-site.

Established: 2010
Number of campaigns: over 2,000,000
Contact e-mail: support@gofundme.com
Crowdrise  
crowdrise Crowdrise by GoFundMe has made an online crowdfunding platform for fundraising some social non-profit events for reaching a specific goals by holding an event. Users post on-going social non-profit events on web-site and try to involve more people into in and raise money for its funding.

Established: 2010
Number of campaigns: 1,500,000
Contact e-mail: quintas@crowdrise.com
PledgeMusic
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Sometimes it's really hard to promote new album or concert if the band is not famous yet and wants to make more people be aware about music released. In this case PledgeMusic makes it possible for music bands to ask for funding and even make some rewards in return for donors.

Established: 2009
Number of campaigns: over 50,000
Contact e-mail: info@pledgemusic.com
Mightycause
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Just like a GoFundMe, Mightycause which is the former Razoo aims at fundraising non-profit projects for a common good, gathering donations from people and trying to make a collaboration between contributors and nonprofit communities.

Established: 2007
Number of campaigns: over 14,000
Contact e-mail: info@razoo.com.
RocketHub
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RocketHub crowdfunding platform was created exclusively for young entrepreneurs who want to introduce their products and ideas to potential investors and see whether their start-ups are worthy and interesting to be invested in. RocketHub usually deals with funding through venture capital.

Established: 2009
Number of campaigns: over 500,000
Contact e-mail: support@rockethub.com
Crowdfunder
crowdfunder-300x112

 

Crowdfunder is a serious platform that enables entrepreneurs sell their equity in order to get funding as a part of venture capital or attract angel investors with a creative and unique idea for business.

Established: 2012
Number of campaigns: over 36,000
Contact e-mail: info@crowdfunder.com
Lending Club
lendingclub-150x150 In order to develop the idea entrepreneur has no money for, LendingClub provides an opportunity to find investor who will support even crazy or unusual idea with loan it requires by offering in return low interest rate. This crowdfunding platform claims that it much easier to get funding through it rather then ask for loan in a bank.

Established: 2007
Number of campaigns: over 2,400,000
Contact e-mail: support@lendingclub.com
AngelList  
angellist-recruiting-420x320-20171122-150x150

 

AngelList supposed to be one of the most known platform for start-ups and angel investors as it provides information about all registered there start-ups, vacancies for job seekers and general info about founders and the idea created. Each month platform raises millions of dollars online and often participates in start-ups' development.

Established: 2010
Number of campaigns: over 100,000
Contact e-mail: team@angel.co
Ulule  
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Ulule is a multicultural crowdfunding platform that aimes at finding a match between entrepreneur and creator for mutual benefit and future success for the start-up. Ulule has already helped to find funding for more than 23,000 projects and ispired a lot of creators to introduce their products and ideas.

Established: 2010
Number of campaigns: over 23,000
Contact e-mail: projects@ulule.com
Funding Circle

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Just like LendingClub, Funding Circle offers loans for business development offering fair interest rates and many options of returning terms and conditions. Funding Circle operates mostly in Europe and United States and is the biggest lending platform providing opportunities to get funding for small companies by interested investors.

Established: 2010
Number of campaigns: over 40,000
Contact e-mail: contactus@fundingcircle.com
Seed&Spark
seed_and_spark_silver.951b937c78f6-150x150 Seed&Spark is another crowdfunding platform based on paid subscription for watching entertaining and unique content in a view of movies, music etc made originally for subsribed users streaming on official site of the Seed&Spark platform by artists to promote their creative work.

Established: 2012
Number of campaigns: over 1,000
Contact e-mail: hello@seedandspark.com
Crowdcube
Crowdcube-150x150

 

CrowdCube works as a common crowdfunding platform where investors are able to fund interesting for them small businesses and get its equity or annual return for supporting the chosen idea. CrowdCube claims that every ambitious entepreneur will get fair funding for promoting his/her project and be backed by crowd.

Established: 2010
Number of campaigns: over 500,000
Contact e-mail: support@crowdcube.com
GoGetFunding
GoGetFunding-Icon-150x150 The best solution to lauch your start-up in a few steps and get money to your PayPal account is via registering on GoGetFunding website. This online platform enables every young creator to introduce the idea and gain donations from investors just by creating a page on GoGetFunding for free or participate as an investor by supporting unique and promising small businesses.

Established: 2010
Number of campaigns: over 1,000
Contact e-mail: info@gogetfunding.com
Fundable  
fundable-logo-main-150x150

 

The next crowdfunding platform is Fundable. Mainly it operates in US with main office located in Ohio. Interesting thing about platform is that it was founded by ambitious entrepreneurs that raised money asking for investors' funding and thus Fundable is really looking forward to helping small businesses to raise their capital and offering asisstence in any questions or difficulties they have faced.

Established: 2012
Number of campaigns: over 500,000
Contact e-mail: info@fundable.com
Kiva  
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Kiva is a unique platform for investors to fund small family businesses located in developing countries where seeking for investor seems almost impossible to achieve. Even small loans mean a lot for people trying to develop their ideas and enter the market with interesting ideas. Currently, Kiva works in more than 80 countries gathering millions of dollars each year in loans.

Established: 2005
Number of campaigns: over 6,500
Contact e-mail: contactus@kiva.org
YouCaring
YouCaring-square-150x150

 

YouCaring aims at matching contributors with humanitarian causes that are in need of help and fundraising. By exploring the web-site possible donor can choose among variety of cases' categories and offer funding in a view of charity donations for achieving some social goal. During the whole existence of YouCaring, the platform has raised more than a billion dollars for projects' realization.

Established: 2011
Number of campaigns: over 850.000
Contact e-mail: Info@YouCaring.com
Fundly  
fundly_logo_vertical_lockup-150x150 Fundly is a very convenient social crowdfunding platform that doesn't require any fees for its usage. Donators usually find something they really care about and provide the company with a partly funding by creating own campaign in the web-site. Fundraisers of any size are allowed to register in Fundly and get funding for bringing ideas into life.

Established: 2009
Number of campaigns: over 8,000
Contact e-mail: info@fundly.com
JustGiving
justgiving-logo-150x150

 

The next charity platform dealing with donation to some particular social cases is JustGiving. This website makes every visitor believe that people have a real possibility to raise money and get cured, be supported, realize the most desirable dreams and be extremely thankful for generous charity donations.

Established: 1999
Number of campaigns: over 1,000
Contact e-mail: help@justgiving.com
Investedin  
ui9wu8q0mncwfbxsxr77-150x150 Investedin is a company that offers different investment networks to its users, fills them with solutions related to fundraising and gives a possibility to create own investment network by consulting with Investedin. Apart from networks, Investedin has in its portfolio three crowdfunding platforms maintained and powered by the company through investments it has made.

Established: 2009
Contact e-mail: support@invested.in
StartSomeGood
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This crowdfunding platform namely StartSomeGood focuses mainly on fundraising of social events and projects by providing various categories contributors may find interesting to donate in and also this platform holds different events taking place each year to show changemakers and their ideas worthy to realize for solving particular social issues.

Established: 2011
Number of campaigns: over 1,600
Contact e-mail: hello@startsomegood.com

Building a successful crowdfunding campaign

After choosing the right platform for your startup, you need to build a profile. According to Invesdor, there are four steps that most crowdfunding platforms requires you to follow. The preparation phase, hidden phase, public phase and the closing. In the following section, you will find all the steps you need to follow in order for your startup to have a successful campaign.

Building your crowdfunding campaign to be successful

Preparation

Build your profile - Your profile should contain your pitch, relevant documents, and your marketing plan. Most of the heavy lifting for a crowdfunding platform takes place well before anything goes live.

This stage is about building your idea and setting aside the resources necessary for its success. Investing the necessary time and effort is the difference between success and failure.

[Related Article - They Raised How Much? Secrets About Great Pitch Decks]

Create a video - Create a short video explaining your goals, your process of creating the product and what you want to achieve after raising the money. The video is going to be the first thing that people see on the crowdfunding platform.

A video makes it easy to convey your message, making the experience more engaging for the user and it will activate their emotions too. Kickstarter is pushing forward on videos as their statistics show that a fundraising project that includes a video is 85% more likely to achieve the goal.

kickstarter-video-production-services-767x409

Plan your outreach and target your network - In this process, you need to create a portfolio with a list of emails, phone numbers, and channels to contact people and promote your idea. This marketing message has to be complete for every step of the pre-launch and the days following the launch.

Hidden Phase

This the point where you will use the marketing portfolio created previously. Before you go public, you need to set a target that you want to reach in a set timeframe. After you collect at least 30% of the funds from your network, you can go public and start raising money online.

Early investments - Early outreach with investors and others already in your network will give social proof and validation, showing that people see the potential in your project. That means in the first phase you are dependent on your close network to commit a pledge to your campaign in its initial days.

The truth? Nobody wants to be the first to invest. If they see that you don’t have previous investments, they may misinterpret it to mean your product has no potential. Hence they will hesitate and move on to the next idea. Thus it is vital to firstly collect money from your personal network before going live on the crowdfunding platform.

Public Phase

Updates - This is the moment you go live with your campaign and start making it visible to the investors. You can monitor the status of your fundraising and handle all the incoming messages and feedback. Moreover, you are required to constantly keep your followers and audience up to date with the progress of your company and where the money is going.

Optimization - Your marketing campaign doesn’t end here. So you still have to keep it going within every phase. Consider AB testing and use every channel and test its validity in your campaign.

Add new incentives or pledge levels - Expand your network. Use all available channels of communication and take action with the money raised. The more channels you use, the more likely it is for your campaign to gain an audience, which will lead to more followers and backers. It is your responsibility to get your campaign out there and present it to the public.

Closing

When the timeframe has reached its deadline, your campaign will stop. It’s important to know that even if you have reached your goal in terms of the money collected, your campaign doesn’t stop until the deadline date. You can still receive money up until the deadline.

Transparency - It is the key to crowdfunding. Follow through with both the people who donated and the ones that didn’t. Inform them about the next steps and future plans for the money collected.

scarcity_principle

Scarcity principle - It is essential to keep everyone updated on the growth of your product. Why? Those who didn’t invest in your campaign could see that your product proves to be successful and in demand. They'll want to try it too. Using the scarcity principle will drive your sales and demand by planting the desire in everyone’s minds.


Navigate our interactive map!

Check out the video!

Having a startup and trying to seek funding can be really hard and time-consuming. A majority of startups fail because they run out of cash. If you are a startup and having a hard time seeking investments, a great and easy way to do it is crowdfunding.

Go for it, there is nothing to lose, only to win. People out there have the power (and funding) that are looking for. The only thing that you need to be careful of is to follow all the steps mentioned above, and to make sure you are targeting the right audience. Invest your time in the pre-launch phase of a successful campaign.

What is Valuer?

Valuer is an intelligent platform that helps connect corporations with startups in order to build better relationships and help with funding. We are always looking to connect, visit Valuer to learn more. 

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