Published By Janet Gershen-Siegel at June 23rd, 2018
Are crowdfunding platforms confusing you? Are you thinking of crowdfunding your business? There are several platforms out there with differing requirements. And they are not even close!
Getting working capital to grow your business doesn’t have to be hard. Many companies these days turn to crowdfunding. A lot of these options will work for startup ventures.
For some companies which crowdfund, the rewards are great. As per the Crowdfunding Blog, the single most successful crowdfunding campaign was for the Pebble Time Smartwatch. So this was as of November of 2018. But before you run out and try to buy one, note one thing. They are now a part of FitBit.
As in, they went out of business in July of 2018. So this is a business which raised over $20 million in 2015! That is no typo. And in point of fact, Pebble holds three of the top six spots in the biggest crowdfunding successes of all time. Together, these three crowdfunding campaigns raked in a staggering $43.39 million.
This is about $8 million more than the town of Huntington, New York (population 203,264) budgeted for highways in 2018. Yes, really.
So there is one thing that should be clear to all. Runaway crowdfunding success is no guarantee whatsoever of actual success.
But now it is time to get to the crowdfunding platforms that you should know about.
Your very first decision should be: just how much do I need to crowdfund? If you need $1 million, you are going to need to crowdfund more than that. Why? Because that is how crowdfunding platforms make their money– they take a percentage of any money you can raise. Thus, you will need to take that into consideration. Crowdfunding percent charges vary from 4% to 10%.
Check with the crowdfunding platforms which interest you the most – just in case they don’t allow perks.
But for many crowdfunding platforms, yes, you will have to offer perks to your donors. Perks can take many forms– buttons, tees, book marks – every one of those are possible tangible perks. Consider a perk format which can sync with your business. If you sell homemade jam, then perhaps create a unique flavor just for the campaign, and offer bigger and bigger-sized jars depending on donation amount.
If you are a horseback riding stable, offer a complimentary lesson or a postcard with a favorite horse’s image on it, or something like that. Does your startup flip houses? Then consider offering a coupon to a neighborhood home supply company or the like. Be sure to work with them beforehand, of course.
Perks are only limited by your imagination, so be creative! And if you can offer something which people will use a lot, then so much the better.
Physical perks are a massive pain! A lot of people love them, and they will stand out. Plus, if a perk is used regularly, it will help to keep your company at the top of your backers’ minds.
However, you also have to ship physical perks. You may be an American company, but that doesn’t mean all of your backers will be in the United States. International shipping is extremely expensive, even for small items. So if you offer physical perks, specify whether you will allow international donor addresses.
And you would usually be working with a range of available perks. Did Jane want the stuffed teddy bear or the book mark? Did Alan want the pennant or the tee shirt? Do Jane and Alan live at the same address so perhaps you could mail their perks out together? What if a perk is lost or broken in the mail? And what if it injures someone?
Because of this, if you can do it, you might want to try for digital perks. For a house flipping startup, you might record video footage about home design or repair. For a long haul trucking company, you could offer PDFs with personal recommendations on what to see and do in certain cities you service. And for a nail salon, maybe offer digital coupons for a free month of manicure touch ups.
They are the biggest crowdfunding platform. They have over 14 million backers and over 130,000 funded projects. Campaigns are for products and services such as:
You will need to have a prototype. Projects cannot be for charity, although nonprofits can use Kickstarter. And you can’t offer equity in a company as a perk.
Taboo projects and perks include anything to do with:
There is a 5% fee on all funds which creators collect. Stripe, their payments processor, will also apply payment processing fees (roughly 3-5%). Campaigns that don’t make it don’t pay a fee. There are also fees of 3% + $0.20 per pledge. Pledges under $10 have to pay a discounted micropledge fee of 5% + $0.05 per pledge.
Indiegogo has over 9 million backers. Their minimum goal amount is $500. They charge 5% platform fees and 3% + 30¢ third-party credit card fees. Fees are deducted from the amount raised, not the goal. So if you exceed your goal, you will pay more in fees. They do not take PayPal.
Indiegogo is notable because they offer both fixed and flexible funding. This means, if you do not make your goal – assuming you chose flexible funding – you can at least hold onto what you collected. Hence it is the opposite of how crowdfunding normally works.
You cannot change your fundraising structure from fixed to flexible (or vice versa) once the campaign starts. They recommend fixed funding if you need a minimum amount for your project. Indiegogo recommends regular communications to donors if you choose fixed funding.
RocketHub is more for entrepreneurs who want venture capital. They give you an ELEQUITY Funding Room. So you can pitch your idea and see if it stimulates any interest from donors.
This platform is specifically for business owners working on projects in these categories:
If you achieve your fundraising goal, you will pay a fee of 4%. In addition, you’ll pay a 4% credit card handling fee. But if you do not reach your goal, then that fee jumps up to 8% plus the credit card handling fee. Hence RocketHub is best for companies which are more confident they will make their goals.
CircleUp is only for businesses. Their aim is to help emerging brands and companies raise capital to grow. However, companies must apply and show revenue of at least $1 million to get a listing on the site. However, the platform will sometimes make exceptions.
Due to its more thorough process, CircleUp can be good for entrepreneurs who already have a somewhat established business. These are business owners who want both funding and guidance in order to take their businesses to the next level.
If your business gets approval for listing on CircleUp, the fee percentage comes from the total amount you raise.
CircleUp says (in its FAQ): “Our commission is intended to be generally consistent with what companies pay to investment bankers in the offline world for similar size fundraising rounds.”
Because the name is known, we should mention GoFundMe. But it’s probably not the best choice out there.
In general, GoFundMe is for individuals. Hence you might conceivably use it at the very beginning of your starting up a business. You will need to meet your fundraising goal in order to collect. The service charges 5% as a platform fee outside the United States. But there are no specific platform fees in America. However, there are payment processing charges of between 2 and 5%.
GoFundMe is often for personal causes, such as people looking to cover their medical bills. Hence it may not be best for business funding. In addition, given the large numbers of people who use GoFundMe for personal expenses, be aware that a business plea might get lost in the shuffle.
Crowdfunding is not for everyone. But it’s a lot more than Kickstarter, too.