One of the most challenging barriers in business and in life is the difficulty of securing the financial resources necessary to launch a major project. There have always been many ways of going about overcoming this hurdle, but the rise of Internet crowdfunding sites has revolutionized the way individuals and businesses think about advertising and marketing.
“Crowdfunding” is a method of generating capital by using an Internet platform to advertise a product, charity, or a cause, and to collect relatively small financial contributions from a large number of investors or donors. There are hundreds of crowdfunding platforms for this purpose, the most popular of which we’ll review here.
Crowdfunding sites provide businesses with the opportunity to generate capital directly from the general public, thereby flipping the traditional means of acquiring such monies, which typically require a business to make proposals to a small number of wealthy and influential investors, such as large banks. There are innumerable benefits to this relatively new method of fundraising. Crowdfunding gives businesses the opportunity to test the market directly, providing them the opportunity to see how their ideas and products will be received before the product is actually produced. Businesses can post a campaign to generate a wealth of information based on community feedback; for example, to determine whether or not there is a market for an idea or in what way an idea needs to be altered or improved upon.
Reward- vs. Equity-Based
There are two basic types of crowdfunding: reward-based and equity-based. The former is more widespread than the latter. A reward-based campaign offers incentives, or rewards, to investors of a campaign, such as small gifts, early access to products, or exclusive access to content unavailable to non-investors, to name a few examples. Thus, they are rewarded for investing. A common exception to reward-based crowdfunding is donation-based crowdfunding, which does not necessarily offer material incentives for investing. Examples of this kind include disaster relief efforts, charities and campaigns for nonprofit organizations. An equity-based crowdfunding campaign, on the other hand, incentivizes potential investors by offering to sell shares of the company stock in exchange for funding commitments.
Developing a Campaign
The step-by-step process of crowdfunding is, despite the differences noted above, essentially the same on most sites. The first and most important step of crowdfunding is to create a compelling campaign profile which describes your ideas and your reasons for desiring the help of investors. This is often done by producing videos, photographs, and written descriptions about the project. Once a persuasive profile has been created, it will, in most cases, be necessary to spend time advertising on social media and elsewhere to help the campaign gain momentum. Although there is no shortage of crowdfunding campaigns that have gone viral and have exceeded their financial goals, it is more than likely that advertising will be a necessary step to finding donors.
Choosing a Platform
There are literally hundreds of unique crowdfunding sites available to choose from before launching a campaign, but a few of the most popular choices include Kickstarter, Indiegogo, GoFundMe, YouCaring, and CrowdRise. KickStarter and Indiegogo are platforms that are especially suited for pitching products. Indiegogo also allows for equity-based crowdfunding in addition to reward-based crowdfunding. Additionally, Indiegogo has recently paired with YouCaring, a site dedicated to fundraising projects for humanitarian causes including medical, memorial and adoption funding. KickStarter, on the other hand, is a platform solely for products and does not fundraise for charities. CrowdRise, a platform similar to YouCaring, is also dedicated to supporting charitable causes and events. It is important to determine, before launching a campaign, which crowdfunding platform is best suited to support your cause.
Crowdfunding is an easy and an excellent option for individuals and small businesses attempting to launch a product or a fundraiser in support of a charitable cause.
