*This article has been updated 02/2017 for accuracy and new information
You know what crowdfunding is, but it has grown and changed so quickly in the past five years that you might need to be brought up to speed. Originally, crowdfunding was raising funds from the general public for a project, venture or person via the Internet. That is still the case although there are many more sites raising funds. The funds raised are typically small amounts of money donated by large numbers of people. Crowdfunding offers small businesses and entrepreneurs a chance at success by enabling them to grow and have a large public presence.
The general concept is the same. Project appeals create a profile, offer a short video describing their idea or project, the amount of money they need to raise and some rewards for various donation levels. Often there are a fixed number of days the project will be up on the site. Visitors to the page can see how much money has been raised to that point. Many sites have an all or nothing format – if the project does not raise the target amount of money, the project fund raising is canceled and no pledges are collected.
Crowdfunding has grown so quickly in the past five years that there are now specialized niches of crowdfunding. In addition, two crowdfunding models have emerged: crowdfunding sites that are rewards based where people pre-purchase a product, donate to projects or experiences, or just donate, and receive a reward if the funds were raised. The second and newer model is one where donors are allowed to actually invest and become shareholders, known as equity crowdfunding. In this model, companies sell ownership stakes in the form of equity or debt.
While crowdfunding is often thought of as useful for small businesses and start-ups, larger companies use it to expand their product range. Crowdfunding is a great way to source potential customers and gain greater public exposure.
Crowd Sourcing Rewards Based:
Kickstarter might be the best-known rewards-based crowdfunder. In 2014 a total of $444 million was raised. It screens all applicants and has a 20% rejection rate. Their fee is 5%. Personal fundraising, businesses and charities are not included in the projects Kickstarted accepts. It is for creative ventures only. There is a processing fee of between 3 – 5%.
GoFundMe has raised over $1 billion for personal fundraisers to date. It is popular with education and humanitarian efforts. In 2014 $470 million was raised. There is a 5% fee, and a processing fee of between 2.9 – 3.2%.
Indiegogo is open to almost any kind of project and has a larger international presence than Kickstarter. It was originally launched to support films and theater but now accepts all projects without review. It charges a fee of 9% but if the goal is raised they refund 5%. There is an additional 3% processing fee.
Crowdrise is a fundraising site for charitable causes. It has a similar platform to Kickstarter and Indiegogo. It has a large community of charitable and cause supporters and funds inspiring causes and needs. It has a Points System to track how large a charitable impact members and organizations are making.
Quirky is a rewards-based crowdfunding site primarily for product inventions and developers. Investors learn a lot about the process of bringing an idea to fruition. It’s fun to browse the inventions and over the past couple of years I’ve bought some. It’s great when an invention takes off!
Tilt is a rewards-based fundraising site for groups and communities wishing to pool their funds and raise money together. The amounts are small but the average ‘tilt’ collects 192% of their goal! For example, the Jamaican Bobsled Team raised $129,000 in three days to fund their trip to the Olympics in Sochi. Another tilt user raised money for a block party.
CircleUp is the fundraising source for everything except tech startups. They focus on high-growth consumer products and retail companies. There is no fee for investments for friends and family. They charge a fee only from new investors subscribing via its broker partner WR Hambrecht & Co. I have a friend who has made several very successful investments! It has raised over $30 million to help 30 companies grow in the past two years.
Microventures is known as “the investment bank for start-ups”. It researches startups and if they are approved, helps raise capitol from investors via its SEC-approved online platform. Its investors can invest small amounts to crowdfund startups.
Crowdfunder raises investments and has a large and fast-growing network of investors. It offers equity crowdfunding from individuals, angels, and venture capitalists.
If you are interested in participating in a crowdfunding site, go to Crowdsunite which details and compares all the crowdfunding sites’ missions and fees. They also have user reviews to help you figure out which site is for you.
Do you have a novel needing to be supported? See our article on Unbound, a blend of traditional publishing and crowdfunding. Go ahead and pitch them your idea!