This is when an investor receives a portion of the company in return for their investment. Plus, you’ll get a rundown on some of the best crowdfunding sites to fund your next venture.
Let’s dive in.
What is Crowdfunding?
Crowdfunding is the process of funding a venture or project by raising small amounts of money from a large number of people.
Crowdfunding for startups is a common practice, and it’s also often used by inventors, entrepreneurs, musicians, filmmakers, artists, and charities.
It began in 1997 when British rock band Marillion challenged the status quo.
Lacking the money to finance their U.S. And it focuses on empowering people to lift themselves out of poverty.
The image below shows Imelda Group’s campaign to raise money to build their local business:
. Let’s take a quick look at four of the main ones.
1. Gatekeepers used to be everywhere.
Very few people could start a business, publish a book, release a record, or broadcast their opinion without someone else’s financial backing.
Unless you had a particularly wealthy and supportive relative, you’d have to try your luck at the bank or in countless soul-crushing meetings with investors.
And even then, you’d lose large portions of equity or be crippled by high-interest rates.
Thankfully, today there’s another way.
In this article, you’ll learn why crowdfunding for business is so powerful, and essential tips on creating a successful campaign, and some crowdfunding examples sprinkled throughout for inspiration. Donation-Based Crowdfunding
This form of crowdfunding is when supporters freely donate money without any reward or monetary incentive.
As a result, donation-based crowdfunding is usually employed by charitable causes, such as this campaign on Fundly to support a flood recovery project for the Happy Kids Center:
There are many donation-based sites online, such as GoFundMe and JustGiving.
4. Crowdfunders will create a page on one of these sites, where they’ll pitch their project or venture to potential backers.
Then, they’ll attempt to drive traffic to this page using marketing tactics like PR, pay-per-click advertising, and social media marketing.
Let’s look at an example.
Pimax launched a crowdfunding campaign on Kickstarter for “the world’s first 8K VR headset.”
They used the campaign to bring the product to market faster and to improve the product, based on feedback from fans and customers.
After launching, the company raised more than $4.2 million from nearly 6,000 people.
How Does Crowdfunding Work?
There are many types of crowdfunding available. tour, the band raised $60,000 from fans – and in the process, created the blueprint for today’s crowdfunding sites.
That’s when the gatekeepers started to lose their stranglehold.
With so few business models you can start without capital, crowdfunding brought opportunity and democracy to funding.1§
Then crowdfunding went mainstream, and online crowdfunding platforms flourished. Reward-Based Crowdfunding
This is one of the most popular forms of crowdfunding, and it’s synonymous with sites like Indiegogo and Kickstarter.
Reward-based crowdfunding is when people pledge money in exchange for a certain benefit or package.
They started a reward-based crowdfunding campaign on Kickstarter to raise money for their new motorbike navigation device.
They provided a tier of rewards in return for different amounts of money, such as:
$129 or more: One Beeline Moto device, one mount, and a future discount.
$199 or more: A limited edition machined aluminum Beeline Moto device.
$229 or more: Two Beeline Moto devices, two mounts, and two copies of the Beeline app.
Offering a range of rewards allows crowdfunders to maximize the amount of money they’re able to raise by appealing to all levels of interest.
2. Equity-based crowdfunding enables people to become part owners of the project or venture – sharing both the risks and rewards.
The investor can also sell their share of the company in the future.
Crowdfunding sites like Crowdfunder, CircleUp, and OurCrowd allow businesses to partner with their investors.
A great example is Dubuc Motors.
This electric sports car company has used Crowdfunder to raise over $6 million to grow their operations in exchange for equity.
3. Suddenly, entrepreneurs and artists could simply ask their fans and customers to fund their new ventures.
Today, most crowdfunding is conducted through crowdfunding sites like Kickstarter or Kiva. Peer-to-Peer Lending
Peer-to-peer crowdfunding sites like Lending Club and Prosper enable people to borrow money outside of traditional bank loans.
It’s great for lenders too.
Those willing to take the risk can easily build a portfolio of loans that often pay higher rates of interest than banks.
Kiva is one of the best known charitable peer-to-peer crowdfunding sites.