Raising money is the key to launching and growing any successful business. Unfortunately, it can be extremely difficult for some startups to access the capital they need, especially when credit markets are tight. Crowdfunding provides people and businesses the opportunity to access capital from millions of smaller investors rather than relying on a handful of large, institutional investors. Investors can take small ownership stakes in private businesses that can provide much higher potential returns than public companies, but crowdfunding comes with its own set of risks.
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Here are seven of the best crowdfunding platforms and some key points to consider:
— Overview of the best crowdfunding platforms.
— Successful crowdfunding campaigns.
— Mistakes to avoid when crowdfunding.
— Things to remember before launching your crowdfunding campaign.
— Takeaway.
Overview of the Best Crowdfunding Platforms
At a bare minimum, you should choose a platform that is easy to use, has customization options, has integration for social media and has a track record of successful fundraising campaigns. Whether you are an entrepreneur, a philanthropist, an artist or an investor, these seven leading crowdfunding platforms can help you leverage the power of crowdfunding to execute your financial plan.
GoFundMe
GoFundMe was founded in 2010 and is the largest crowdfunding platform. The company has more than 100 million global users, and its campaigns have raised more than $25 billion collectively. There have been more than 200 million donations made on the GoFundMe platform, and the company claims it averages roughly one donation per second. GoFundMe specializes in individual fundraising campaigns, including people raising money to pay for medical expenses or recover from house fires or other disasters. There is no fee to launch a fundraiser on the platform, but GoFundMe charges a per-donation fee of 2.9% plus 30 cents.
Kickstarter
Kickstarter was founded in 2009, and the crowdfunding platform specializes in funding projects and startup companies. Kickstarter’s community includes more than 22 million investors and donors who have collectively pledged more than $7.6 billion to successfully fund more than 248,000 projects. Of those successful projects, about 32,000 projects raised less than $1,000 in funding, while 780 of them raised more than $1 million. Kickstarter projects have a success rate of about 41%, and there are currently more than 3,200 live Kickstarter projects. Kickstarter collects a 5% fee for successful projects but collects no fee for projects that don’t reach their funding goals. The platform’s payment processor, Stripe, also collects a 3% to 5% fee for successful projects.
Indiegogo
Indiegogo users have helped fund more than 800,000 projects since 2008. The platform has grown to more than 9 million users, and about 19,000 new campaigns are launched on Indiegogo each month. Indiegogo is the leading crowdfunding platform for tech products, but it’s also home to art projects, environmental innovation projects and social impact campaigns. Indiegogo provides fundraisers access to expert support and exclusive partnerships. Once a project meets its goal, fundraisers will receive their cash within 15 days of the end of the campaign. Indiegogo charges a 5% platform fee on all funds raised by its campaigns. For payment processing, the platform charges an additional fee of 3% plus 20 cents.
StartEngine
StartEngine, which launched in 2015, is one of the largest equity crowdfunding platforms. The company is led by Activision co-founder Howard Marks, and celebrity entrepreneur Kevin O’Leary is its strategic advisor and spokesperson. StartEngine users have raised more than $700 million from more than 1 million users, and the company’s acquisition of SeedInvest in May 2023 has created a massive community for startups looking for capital and investors hoping for big returns. Non-accredited StartEngine investors can invest a maximum of 10% of their annual income or 10% of their net worth per year, whichever is greater.
Patreon
Patreon is a popular crowdfunding platform launched in 2013 and geared toward artists and other online content creators, such as journalists, musicians, podcasters and writers. Patreon has more than 8 million monthly active members and more than 250,000 creators who have collectively earned $3.5 billion. Creators can launch a Patreon page for free, but the company collects a fee of between 8% and 12% from income that creators earn via monthly or annual subscriptions. Patreon isn’t focused on funding single projects or causes, but is instead designed so content creators can monetize their loyal audiences via a recurring revenue model.
Classy
Classy is an independent subsidiary of GoFundMe and is a crowdfunding platform geared toward nonprofit fundraising. The company has thousands of nonprofit partners and has raised more than $6 billion for social causes. In addition to helping nonprofits raise funding, Classy also invests 1% of its top-line revenue back into the nonprofit sector. Classy offers fundraisers a unique set of tools, including sponsor matching, which encourages donors to match the contributions of others. Classy prices its packages according to customer needs, and its pricing is a combination of an annual upfront subscription and a transaction fee for each donation.
CrowdStreet
CrowdStreet is a Texas-based company founded in 2013 that specializes in real estate crowdfunding. Buying entire properties can be expensive, difficult and risky for many individual investors, but investors can leverage the power of crowdfunding to make small investments in dozens of large real estate projects. CrowdStreet has funded more than 798 real estate deals worth a combined $4.2 billion. Investors have cashed out of 168 of those deals and generated a 17.9% realized internal rate of return. Unfortunately, the platform is only available to accredited investors who meet specific requirements related to wealth and investing experience, and most deals have a $25,000 investment minimum.
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Successful Crowdfunding Campaigns
Crowdfunding campaigns are certainly not guaranteed successes, but there have been several massive campaigns that have been tremendous successes:
America’s Food Fund
Platform: GoFundMe Funding: $45.1 million
America’s Food Fund was launched by Leonardo DiCaprio and Laurene Powell Jobs in April 2020 to raise money to provide food for hungry Americans.
Surprise! Four Secret Novels by Brandon Sanderson
Platform: Kickstarter Funding: $41.7 million
Award-winning author Brandon Sanderson has raised a massive amount of money on Kickstarter to fund a project to deliver four new secret novels to donors throughout 2023.
Star Citizen
Platform: Kickstarter Funding: $622 million
Star Citizen is a multiplayer space trading and combat simulation game that initially raised $2.1 million via a 2012 Kickstarter campaign, but the company’s website now claims it has now raised more than $622 million in total crowdfunding.
Mistakes to Avoid When Crowdfunding
Crowdfunding can be a lucrative tool for raising much-needed capital for a business or project, but it’s important to avoid these common crowdfunding mistakes that can undermine your fundraising success or your investing returns:
Setting a funding goal too high. Investors and donors often look at what percentage of a project’s funding has already been achieved to get a feel for its chances for success. If you set your funding goal too high, that low percentage may deter potential investors.
Setting an aggressive delivery timeline. If your crowdfunding campaign is based on the idea that investors or donors will receive a product, a piece of art or another type of content by a certain date, make sure you will be able to deliver on that promise if you reach your fundraising goal.
Offering too many perks. Offering investors and donors perks is a great way to encourage them to join a campaign, but every minute and dollar spent on perks is less time and money that goes to the primary objective. Rewards can be a useful tool, but keep them as simple and cheap as possible.
Putting all your eggs in one basket. For crowdfunding investors, startups and early stage private companies have an extremely high failure rate. The more you can diversify your investments, the less likely you’ll end up generating a catastrophic loss.
Things to Remember Before Launching Your Crowdfunding Campaign
There’s no way to guarantee crowdfunding success, but these simple tips will help improve your odds of success:
Understand your goals and your target audience. You will want to set a realistic and reasonable fundraising goal and design your campaign to appeal specifically to the types of investors and donors you intend to attract.
Create a high-quality pitch video or presentation. Investors will see the quality of the pitch video or presentation as a reflection of the quality of the investment, so it’s a valuable way to make a great first impression.
Get backers in place before your campaign launches. If you can line up commitments from investors to achieve 20% to 30% of your funding goal right out of the gate in the first several days after your campaign launches, that momentum portrays excitement and opportunity to other potential investors.
Make your campaign inspiring. Yes, investors want to see attractive financial projections and a solvent business model. But the best projects are also inspirational and make investors want to be a part of their success.
Takeaway
Crowdfunding is an excellent way for startup companies or content creators to access precious capital directly from individual investors or donors. It can also be a great way to build a passionate team of financial backers and cultivate a community around your project. For investors, crowdfunding can provide access to early stage private companies or small-scale projects that would otherwise be inaccessible. Many of these projects are extremely risky investments, but the payoff for successful startup investors can be huge.
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7 Best Crowdfunding Platforms originally appeared on usnews.com
