What is Crowdfunding? Who is it for? What kinds of organizations benefit most from Crowdfunding? Our Crowdfunding 101 guide is our Beginner’s Resource for understanding and getting started in the exciting world of Crowdfunding.
Funding Problems Facing Entrepreneurs
Why are we here? Why are you here? You need to solve a con business problem and overcome the hurdle that a razor-thin profit margin and not-enough-cashflow becomes.
Entrepreneurial innovation and ingenuity are as important today as it ever has been. The problem is that banks and Venture Capital firms are reticent to commit funds to scrappy startups. Thus, we have a scarcity of investment capital for entrepreneurs, Early Stage Startups, and High Growth Companies.
Pursuing bank loans or Venture Capital (“VC”) Investors for investment funding is a traditional approach to raising capital. We may as well chase Unicorns and rainbows. While they are both enchanting,g they are equally elusive, and at the end of the day, relying on either funding source is unrealistic.
Venture Capitalists typically invest approximately up to $30 Billion per year, BUT only about 1-4% of the new Businesses and Organizations formed each year will ever get VC funding.
We’re not saying that you shouldn’t pursue funding from banks or VCs, but the likelihood of funding is generally an unwise gamble these days.
Want an innovative approach to raising funding? Why not give Crowdfunding a try?
What is Crowdfunding
Crowdfunding is a way to raise funding for your business for various reasons. IgnitionDeck customers vary from Crowdfunding Platform Business owners who manage the end-to-end lifecycle of a Crowdfunding Campaign for their Project Creators to customers who engage in Equity Crowdfunding and Real Estate Crowdfunding activities.
Raising funds in this manner has become more popular and viable, and the barriers to entry have lowered. There are several online platforms as well as self-hosted solutions that help entrepreneurs Crowdfund their various business ventures.
According to Statista’s crowdfunding facts, crowdfunding projects in North America generate $73 billion annually in both the US and Canada.
Who can Crowdfund?
Any business can get starteHowever, early-stage businesses and startups often look to Crowdfunding to get their business ideas and products off the ground via Equity Crowdfunding.
However, Crowdfunding isn’t only for startups and businesses. Independent board-game creators have benefited from Crowdfunding their ideas. For example, our friend, Patrick Rauland, used Kickstarter to get his game, Fry Thief, off the ground. IgnitionDeck has helped video game developers get their projects funded and launched within three months! Indie Rock Bands have also used Crowdfunding to get off the ground.
While most IgnitionDeck customers leverage the platform to build a business that helps others Crowdfund their ventures, our Self-Hosted Crowdfunding platform helps you raise funds for various use cases.
IgnitionDeck is used for Crowdfunding for Cub Scout Troops, Real Estate Crowdfunding, traditional Equity Crowdfunding, Video Game, and Board Game development, Independent Book Publishing, and more.
We have customers who use IgnitionDeck as a Real Estate Equity Crowdfunding platform (see PeerBrick). If you intend to go this route for your business, you must know any legal/governmental regulations within your locality.
Should you Self-Host or use a Hosted Crowdfunding Platform?
Eventually, you’ll need to decide what Crowdfunding Platform option you’ll run your venture with. And it comes down to whether you will use a Hosted or Self-Hosted Crowdfunding Platform. Check out our Crowdfunding resource guide on choosing the right solution for your Crowdfunding Business.
A variety of factors affect the ultimate decision of what path to choose. What matters more? Customizability? Ease-of-Use? How soon do you need it? It’s ultimately up to you to decide what platform makes the most sense for you and your business.
Crowdfunding as a viable business model
Selecting Crowdfunding as a business model is exciting because there are several pathways to choose to get started, and the choice is deeply personal. The best part is you get to decide what you build the platform for and what it supports.
Finding a niche to serve
Successful Crowdfunding platforms choose a niche to serve. Therefore, it’s essential to laser focus on what audience you want your platform to help.
Maybe you want to build a Crowdfunding Platform that caters to Real Estate Investors, similar to Fundrise. Perhaps you want to create a platform that serves a global art community, like Patreon.
Whatever your niche is, focus on it as specific as possible and choose something you are passionate about.
Researching the competition
The primary challenge of Crowdfunding is to make the projects visible to large audiences and collect your funding. Large, global platforms can contain more than local Crowdfunding Platforms because of the sheer volume of customers and visibility. That said, smaller local Crowdfunding Platforms still matter!
Let’s take an overview of the crowdfunding market by region:
|International||Indiegogo, FundingCircle, Patreon, Fundrazr, GoFundMe, Eureeca|
|North America||Indigogo, FundingCircle, Patreon, Fundrazr, GoFundMe, Kickstarter, SeedInvest, IgnitionDeck|
|South America||Kickante, Catarse, Idea|
|Europe||Seedrs (UK), CrowdCube (UK), Ulule (France), KissKissBankBank (France), Goteo (Spain), Symbid (The Netherlands), Spreds (Belgium), FundedByMe (Sweden), WeMakeIt (Switzerland), Invesdor (Finland), Booomerang (Denmark)|
|Asia||AirFunding (Japan), Camp-fire (Japan), TumblBug (South Korea), DemoHour (China), Kitabisa (Indonesia), Give.Asia (Singapour), Mystartr (Malaysia), Ketto (India), Weeboon (Thailand)|
|Middle East||Zoomaal, Yomken|
|Africa||Cotizi (Morocco), Cofundy (Tunisia), Twiiza (Algeria)|
|Australia and New Zealand||MyCause, Chuffed, Equitise, Pozible|
What are the different types of Crowdfunding, and which should I choose?
It’s crucial to choose a suitable business model for your Crowdfunding Platform, so spend time evaluating your business’s needs and choose one of the popular Crowdfunding Styles noted below.
Real Estate Crowdfunding
These platforms connect real estate investors to brokers who provide various property investment opportunities for investors to invest in. Real estate crowdfunding is similar to equity investing since an investor can buy into a property and become a shareholder. In addition, Crowdfunding offers companies access to capital that they might never be able to raise through a bank or VC.
Donation-Based Crowdfunding Medical and Debt Crowdfunding, or Peer-to-Peer lending
Donation-Based Crowdfunding is a popular crowdfunding business model since it allows people to obtain funding from a group of people, or a community, instead of a bank.
People turn to Donation Crowdfunding to help pay down debts for catastrophic events and disasters or to raise funds to pay for expensive medical procedures. GoFundMe is a popular platform for conducting such types of Crowdfunding. It is a well-known crowdfunding platform utilized by millions of businesses and entrepreneurs looking to expand their budgets for specific projects, needs, and causes.
In my opinion, how you market this style of Crowdfunding matters more than most other styles of Crowdfunding. Your content needs to create an emotional response and be able to connect to human beings.
Joint donation-based crowdfunding initiatives include nonprofits, charities, disaster relief, and medical bills. Therefore, creating a platform that caters to these personas can be beneficial.
Equity Crowdfunding is an investment vehicle for business owners to raise capital for their private businesses. Typically, most Crowdfunding activities of this type take place on online platforms like EquityNet or StartEngine.
Not all early-stage businesses have the ability to generate positive cash flow at the beginning. Moreover, in 2022, with much more significant financial uncertainty (and instability in the world, inflation is rising, interest rates are rising—banks are much more stingy with their lending.
Reward-based platforms include donations, and they provide a specific reward to donors. The reward structure may offer a single benefit or have multiple tiers.
Kickstarter and IndieGogo are popular examples of reward-based crowdfunding platforms utilized mainly by artists, musicians, designers, and filmmakers to fund everything from music and films to technologies and designs.
What makes these types of campaigns so popular is the reward! When the project creator defines a clear funding goal, they must achieve that goal to receive the money. Kickstarter funding is all-or-nothing, meaning you don’t receive the money if you don’t reach your funding goal.
Backers put their money down on various projects to get a reward for the given project. Rewards can be tangible or intangible (symbolic).
Monetizing your platform
Once you’ve built your platform, you’ll need to decide how it makes money. The most common way these platforms do this is through platform fees. You can do this with IgnitionDeck with our Fee Mods Module.
Another means to generate revenue for your Crowdfunding Platform is to create a membership component that charges a regularly occurring fee for the privilege of being a part of your community. If using WordPress, MemberPress is an excellent choice for building a membership platform.
When it comes to Crowdfunding in the US, most of the regulations we see are geared toward Crowdfunding that sells shares or securities for a business, aka Equity Crowdfunding. However, there are a couple of rules to be aware of.
Typically if you’re selling securities in your business, that’s when regulations have to be followed. Therefore, you’ll want to work with providers who are an SEC Registered Funding Portal and FINRA Member Company (If you’re in the United States).
⚠️ Disclaimer: IgnitionDeck only manages the website content and transaction processing portion of your business. You need to be aware of and acquire all of the necessary licenses and certifications required by your legal jurisdiction yourself
IgnitionDeck is among many choices for building your Crowdfunding Platform; there are many others. We feel that building a sustainable and thriving platform is possible as long as you know your audience and if you have a technical team or possess the know-how. It just takes a lot of work.