An iPhone cover made of bamboo, a low-cost 3D printer, a San Francisco bookshop that has managed to survive despite the pandemic. What do they have in common? All three have managed to secure funding for their businesses through crowdfunding platforms.
There are many ways to get financial help for your business: public funding, a loan from a bank or credit company, finding partners willing to invest in your idea, and crowdfunding. So what types of crowdfunding websites are out there? And how can you best use them to finance your next brilliant idea? In this article, we’ll give you an overview of the 6 most suitable crowdfunding platforms for small businesses.
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1. Crowdfunding: definition, functions, and types
Definition: Crowdfunding is a form of collective financing, or collecting sums of money contributed by a large number of people. Instead of trying to get full or partial funding for your business project from a bank, you can create a profile on a crowdfunding platform and try to attract smaller amounts of money from lots of people interested in supporting your activity.
How it works: A person, an organisation or a business needs financial support to carry out a certain project. Let’s say you’re the project owner: you publish your project on a crowdfunding platform and set a collection target. If you reach or exceed your fundraising goal, you receive the money donated by backers (people who contribute money to your project). Depending on the type of crowdfunding platform you choose, backers will receive a reward and the platform will take a % commission. If you don’t reach your fundraising target, the money usually stays in the backers’ accounts and the project is not funded. Some platforms will still allow a project to be funded even if you don’t reach your goal within your set time period. More on these different platforms below.
Types of crowdfunding models
There are four main types of crowdfunding platforms. Here’s a quick summary.
- Reward: Backers receive a non-monetary reward (usually a product or a service) when they invest in a project. This type is widely used not only for funding, but also for testing a product. By reaching the collection target, you get the funds to make your project a reality, plus validation that it’s a good idea: if you get enough funding, it’s a sign that the market wants that particular product.
- Donation: People donate to your cause or project just like they would to a charity. Donors don’t receive a reward or profit share in return.
- Loan: People lend money to a project. Instead of receiving a reward or shares, lenders expect to receive their money back, plus interest. The amount of money lent depends on the lender and the platform you use.
- Equity: Backers purchase an equity share in your company. In return, they are entitled to a share of the profits your company earns.
In this article, we’ll focus on platforms that use reward, donation, and loan models because they work best for small businesses.
2. Comparison of the best crowdfunding platforms for SMEs
Indiegogo is great for funding any kind of project, product, or service, at any stage of the development process.
Visitors: Over 15 million every month.
Projects funded: More than 800,000 so far.
Type: Reward model. Backers (people who donate to support a project) receive a non-monetary reward or “perk.” You can set two types of targets: fixed or flexible.
– Fixed targets: You only receive the money you’ve raised from backers if you reach your goal in a set number of days.
– Flexible goals: You get the money you’ve raised from backers even if you don’t reach your initial goal.
Cost: Indiegogo charges a commission of 5% of the funds raised. A commission ranging from 3% to 5% is retained for processing payments.
Good to know: Integrates with other platforms like Facebook and Google to help you promote campaigns.
Languages: The platform is only available in English.
Kickstarter is specifically designed for creative projects in different categories such as art, crafts, comics, dance, design, fashion, film and video, music, photography, and technology.
Visitors: Around 21 million each month
Projects funded: More than 200,000 so far
Type: Reward model. Based on the “all or nothing” model that lets you set a funding goal and how many days you want to reach it in. If you don’t meet both targets, the project is not funded and any money paid is returned to potential backers. Once a project is funded, investors get a reward.
Cost: Campaign creation is free. But when you reach your goal Kickstarter takes a 5% commission on your funding. You also need to pay commission to the payment provider, Stripe, which is between 3 and 5%.
Languages: Kickstarter is available in 7 languages.
Patreon gives creatives of all kinds (musicians, filmmakers, visual artists, writers, etc.) a way to receive a fixed monthly contribution from their fans who in return get access to exclusive content.
Visitors: Around 6 million people per month (who are actively supporting campaigns).
Projects/artists supported: 187,000
Type: Reward model. The type and amount of exclusive content that supporters get access to depends on the monthly contribution level they choose. These fixed payment levels are set by the artist (eg. giving fans the option to contribute $5, $10, or $15 per month).
Cost: Artists pay a commission to the platform and the percentage varies between plans, ranging from 5% to 12% of their monthly collections.
Languages: Patreon is available in 7 languages.
GoFundMe is mainly used to raise funds for charitable causes but it’s also suitable for financing projects that could have a positive social impact.
Visitors: Around 7.5 million each month.
Projects supported: More than $150 million raised in ten years.
Type: Donation model. The key to the success of this platform is its simplicity: to create a campaign you need to set your goal, tell your story (perhaps including photos and videos) and promote the project through social media, messages and emails. You can do it all from the dashboard of your GoFundMe account. You can withdraw your funding at any time and even if you have not reached your goal.
Cost: There’s no mandatory contribution to the platform. But you do pay a commission fee on payments made by credit or debit card (2.9% of the donation amount + €0.25) which is deducted from the donation amount.
Languages: This platform is available in 7 languages.
Fundly can be used to raise funds for any kind of project.
Visitors: Around 1.9 million per month.
Projects funded: 330 million dollars have been raised so far.
Type: Donation model. Fundly is easy to use, you just create a profile, share your project, download the app to manage your campaign, and use the integrated Facebook OpenGraph feature to promote it on Facebook.
Cost: You pay a 4.9% commission on the total amount of funds raised, plus a 2.9% commission on credit card donations.
Languages: The platform is only available in English.
FundingCircle is mainly dedicated to small and medium-sized enterprises looking for funding.
Projects funded: £11.5 billion lent to around 100,000 small businesses worldwide.
Type: Loan model. The process is simple, you send FundingCircle an application to pitch your project. It only takes 10 minutes to fill in the form. Based on the idea, the platform approves or rejects your application for funding (you can apply for up to £500,000).
Cost: You pay investors a monthly interest rate (between 4.5 and 6.5%) on the amount they lend you.
Languages: The platform is available in English, German, and Dutch.
3. How to launch a crowdfunding campaign that works?
You’ve chosen a platform and you’ve ready to launch your campaign.Here are some tips to help you get the most out of your project:
1) You must have a good idea: this may sound simplistic, but it is true. The campaigns that receive the most funding are those that propose an innovative product or project. Ask yourself the question: “What problem can I offer a solution for?”. For a small business, this might involve launching a new product or surviving a viable and important project in the local community, such as the local bookshop City Light Books which we mention as an example of a successful crowdfunding campaign.
2) Create a convincing profile: make sure that the presentation of your project is convincing and professional. Think about the budget you need to realise your business idea and include it in your campaign profile. It’s important that the target set is sufficient to cover all costs (including those related to rewarding or repaying the loan to your backers), but not so high that it is impossible to achieve. Don’t forget that costs include fees to be paid to the platform and providers for processing payments.
Videos are great at getting people interested in your website, and can do the same job for your crowdfunding efforts. According to Seed Factory, campaigns with videos are 100% more likely to succeed. Kickstarter’s success rate for campaigns that include videos is 50%, even if they’re recorded on a smartphone, but this drops to just 30% with no video. The reason? People want to see who’s behind a project before they part with their cash. Remember to add the video to your website so visitors can support you too.
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3) Take care of the marketing: creating a campaign on a crowdfunding platform is not enough, if you want to attract supporters, you’ll also have to promote it. Tell your friends and family before you even create your profile. Share and promote it on social networking sites such as Facebook and Twitter. Email it to your contacts and to all the people who might be interested. If your idea is particularly innovative, relevant to a local area or is already attracting interest, you could publicise it in other media: press, radio, etc. If your idea is particularly innovative, important for a local reality or is already attracting interest, you could publicise it in other media: press, radio, etc. Don’t forget to mention it on your website or shop.
4) Set a reasonable timeframe: according to Kickstarter, the most successful campaigns last 30 days or less, although campaigns can last up to 60 days. That’s why it’s important that you do some promotional work before launching the campaign.
5) Do some research: take some time to analyse similar crowdfunding campaigns that have already been successful. Are there any commonalities between them? Can you apply the same marketing and promotion strategies? Many platforms provide users with a lot of content full of tips and tricks on how to set up an effective campaign.
For more tips and strategies on promoting your campaign, check out our article on marketing tips stolen from crowdfunding.
4. Get inspired by these crowdfunding campaigns
Now that you know what crowdfunding is and how it works, which platforms are the most suitable for funding a freelance or small business activity, and how to create a campaign that works, you’re probably after some inspiration. So, of all the freelancers and small businesses owners who have successfully crowdfunded their projects, here are our favorites!
- Mous. This company produces thin iPhone cases made of very durable materials such as marble, bamboo, and carbon fibre. Mous launched a crowdfunding campaign on Indiegogo in 2015 which was a huge success: in total, more than $2 million was raised to help Mous get off the ground.
- Formlabs created a Kickstarter campaign to finance their mission to build a low-cost 3D printer. Thanks to crowdfunding, they raised almost $3 million in spring 2013. Formlabs was one of the first companies in the 3D sector to finance itself this way.
- Amanda Palmer is a singer-songwriter, writer, and artist. Thanks to Patreon, she raises money every month so she can continue to create songs, books, posters, and other creative content without relying on anyone but the continued support of her fans. In return, supporters get access to exclusive content that she shares regularly.
- City Light Books. Founded in 1953, this bookshop is a hub for the local community in San Francisco’s Bay Area, and a second home for authors, poets, and readers. Like many other small businesses, it was hit hard by the pandemic. Co-owner Elain Katzenbergen launched a crowdfunding campaign on GoFundMe to help keep paying the shop’s bills and staff. They reached their goal of $300,000 in less than two days and thanks to their efforts, City Light Books has been able to reopen!
- Bird & Blend Tea. When the pandemic hit, government and bank support just didn’t come through quickly enough for this tea company. So they applied for a loan through FundingCircle to cover their payments. They received a response within 24 hours and the borrowed funds reached them within three days.
5. Link your campaign to your website or online store
If you’re ready to crowdfund your product, business, or project, it’s going to need a website to be taken seriously online and secure the funding you want. Here are our top tips on how to boost your crowdfunding campaign with your website.
- Add a link to your website or online shop on your crowdfunding campaign page potential investors and donors see that you’re established and professional. Remember to add your logo to help visitors remember you.
Design a logo that makes your business stand out.
- Add a link to your crowdfunding campaign on your website or online store. That way, regular visitors and customers who know your business can support you and help spread the word! With a Jimdo website, it’s easy to promote your website or store on your social media channels too so more people will see your crowdfunding campaign.
- Your website is like an online business card. It’s 100% you—your colors, your branding, your story—making it the perfect place for all the extra detail and information that might not fit on your crowdfunding page but will help you convince potential backers. Use it to tell them more about you, share updates about your project, or showcase what you’ve achieved so far in an image gallery.
- Unlike your crowdfunding page, you have full control over your website. This means that you can edit your content whenever and however you want, and you’ll always be able to update it even once your campaign is done.
- With Jimdo, you can create a website or online store for free. Even if you only have a one-off campaign to promote, a professional website will help you build trust with potential investors and get more eyes on your campaign. And if you need more professional features once you secure the funds you need, you can always upgrade your website.
You don’t need any experience or coding knowledge to create a website or online store with Jimdo. We’ll guide you through every step and get you up and running in a few minutes. Free.
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We hope you’ve got all the info you need to crowdfund your new business idea or support your small business. For more tips on how to market your campaign, read our Guide to Social Media Marketing.