Art of Crowdfunding | Are you an aspiring artist or entrepreneur looking to raise money for a new product, business, or venture but want to avoid traditional banks and financial institutions? Perhaps you should consider crowdfunding.
Never heard of it? That’s alright!
Crowdfunding is a relatively new fundraising strategy that most people around the world barely know about. So, if you have the time, energy, and a strong online network, all it entails is asking them for money.
However, there’s a lot more to it than meets the eye. So, let’s dive deeper and explore what it is, how it works, its types, key benefits, and popular platforms to consider.
What is Crowdfunding?
Crowdfunding simply refers to the process of raising funds to fuel a business or idea. However, unlike traditional fundraisings, such as direct marketing, donor seeking, pre-selling campaigns, and loans, it’s based on the concept of raising funds from people (fans, friends, family, followers, etc.).
These contributors donate funds directly to fundraisers to help them support their endeavors. However, they can also ask for a return on their investment in the future. Due to its rapid setup and approval rate, crowdfunding is rapidly becoming the most popular way to raise money quickly without resorting to traditional institutions.
How it Works
Crowdfunding typically involves using a platform or medium to attract potential investors to fuel your idea, project, or business. To kick-start a campaign, you need to highlight your cause or specific goal to get their buy-in. This could be done through blogs, videos, or live events. However, the process mainly takes place online and is typically used to support charity, creative, welfare, and humanity projects.
For instance, many non-profit organizations use them to raise money for feeding or helping the homeless, anti-vandalism drives, education, makeovers, and other community-building initiatives.
Types of Crowdfunding
There are essentially two types of crowdfunding:
1. Donation-Based Crowdfunding
This is a crowdfunding model in which donors help fuel different initiatives without asking for anything in return. They do not become backers or shareholders of the business or project. They are in to invest on a not-for-profit basis.
2. Investment-Based Crowdfunding
Investment-based crowdfunding is used by aspiring artists, venturers, or business owners to incentivize or prompt donors into investing in their projects in return for shares or stakes. Therefore, anyone participating in this type of crowdfunding owns some of the equity or decision-making rights. This approach is typically employed by startups looking for multiple investors to minimize their risk of loss.
Key Benefits and Drawbacks
▪ Fast way to raise money without fees, interest, or ownership claims
▪ Pitching ideas or goals can be done via Facebook, YouTube, or other social media platforms
▪ Sharing your ideas or projects can generate feedback and guidance along with money
▪ Excellent for funding unconventional business ideas
▪ An excellent strategy to build more followers or customers
▪ A great alternative to loans and traditional funding solutions
▪ Difficult to build a strong network and persuade people to donate
▪ Requires a lot of time, energy, and resources to generate interest
▪ If you don’t reach your target, the money goes back to the donors or investors
▪ Failed initiatives can cause reputational damage to your business
▪ Crowdfunding sites are full of people looking to steal ideas or concepts and apply for a patent or copyright
Popular Crowdfunding Sites – Our Top Three Picks
Since its inception, several crowdfunding apps have popped up around the world to help users manage their funding initiatives. Here are our top three picks:
Kickstarter is perhaps the biggest and oldest player in the crowdfunding industry. Since its inception in 2009, it has helped hundreds of tech and creative entrepreneurs raise money for their startups and projects. To date, the company has raised over $6.5 billion. However, Kickstarter has a strict application program to ensure all applicants are legit and not scam artists looking for a quick score.
Moreover, the platform also charges a 5% fee for its services along with 3-5% processing charges per transaction. Moreover, individuals are encouraged to set a gift or personal experience for donors once they reach their goals. Lastly, the platform only charges donors’ cards once you have the number of people you need for the venture in the specified timeline.
Patreon is the go-to crowdfunding site for digital creators, such as bloggers, YouTubers, and podcasters. Unlike other sites, it offers a subscription model where donors or “patrons” can donate a preset amount of money regularly (monthly or per creation).
Moreover, this platform enables aspiring artists to engage with their fans and share exclusive content to build long-lasting relationships. The site boasts over 9 million donors and 250,000 digital creators, so if you’re looking to get started, you can opt for one of its three plans (Lite, Pro, Premium). However, do note that the plan you opt for will determine your payment processing fees and monthly income.
GoFundMe is one of the most popular crowdfunding sites in the market due to its low payment processing fee (2.9%) and fixed earning amount for each donation ($0.30). More importantly, unlike most sites, it doesn’t have an all-or-nothing model, meaning you can keep everything you raise instead of giving it all back if you don’t make the target.
However, the site is more popular among users looking to offer a non-profit service, such as helping others or serving an important cause. Only one in ten business campaigns get fully funded on the platform.
With this information, you’re just a few steps away from raising the money you need for your endeavor. However, take your time to thoroughly strategize and develop an intriguing pitch for your idea, project, or startup.
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