Crowdfunding is a powerful fundraising tool. Massolution’s Crowdfunding Report reports that the global crowdfunding industry raised $34.4 billion in 2015. This surge in growth has lead to the creation of many different crowdfunding platforms. Each has varying crowdfunding models, allowances, restrictions, fees and resources—making each platform unique. Which platform is best for your project? Here are several factors to consider when choosing the best crowdfunding site for your needs.
Types of Crowdfunding
- A rewards-based crowdfunding model allows charities, businesses, and entrepreneurs to share a project idea that stipulates specific rewards for supporters based on the amount donated. Examples include Kickstarter, Indiegogo, and Quirky.
- Donation-based crowdfunding helps people seek funds for a project or a cause from supporters without the expectation of a reward. Examples include YouCaring and GoFundMe.
- Equity crowdfunding permits people to invest in a business in return for equity, or a small piece of ownership of the company. In 2015 The Securities and Exchange Commission passed Title III of the JOBS Act, which allowed non-accredited investors to participate in equity crowdfunding. Examples include CircleUp, AngelList, and WeFunder.
- Debt crowdfunding lets businesses secure loans from several people with a fixed repayment plan that includes interest. Examples include Upstart, Funding Circle, and Prosper.
Types of Crowdfunding Projects
A major perk of crowdfunding is its flexibility, meaning the model can apply to several industries. Determining your project type will help narrow down an appropriate platform. For example, the two platforms X and Y work in both Industries 1 and 2.
Several crowdfunding sites serve people interested in creating something. Sites like Kickstarter and Pozible allow for different types of creative projects, including games, films, design, and more. There are more specific platforms, like PledgeMusic, which allows fans to donate money towards a musician’s album. And AppsFunder helps connect developers and donors with tech-savvy individuals to help make their app ideas a reality.
You can raise money for causes that are deeply personal. Many people look to crowdfunding when they are dealing with a pressing financial burden like unexpected medical bills, tuition payments or memorial services. Most donation-based crowdfunding platforms allows individuals to raise funds for varying types of personal causes. There are sites like AdoptTogether for adoption and Healfundr for medical needs; for people who desire a platform that is tailor-made for their type of cause.
A large portion of the crowdfunding industry is dedicated to social good. Many people crowdfund to finance projects aimed at aiding the masses. For instance, Barnraiser connects donors to farmers growing sustainable products, and StartSomeGood is exclusively for people raising funds for a nonprofit or a community group rallying for social change. Some platforms are more specific than others; YouCaring has 21 categories for either personal causes or social good.
Understanding Platform Fees
In general, reward-based and donation-based crowdfunding sites charge a platform fee for their service. For example, the platforms Kickstarter and Indiegogo charge a 5 percent fee. YouCaring is the only crowdfunding site that does not require a platform fee. Additionally, third-party payment processors implement their own fee, which usually ranges between 3 to 5 percent.
For equity crowdfunding, it is common for platforms to take a small commission on the funds you receive. For example, AngelList has no initial charge to sign up, but the site does take 5 percent if the investment is successful.
The debt crowdfunding model has several costs to take into consideration–including platform fees, late fees, as well as payments to the people backing your loan. For instance, UpStart has a platform fee ranging between 1 to 7 percent, depending on your target amount. Additionally, there is a 5 percent late payment fee per occurrence, as well as a $15 fee for failed checks. Each loan is different, but the general interest rate is between 4 to 26.06 percent with an annual percentage rate of 4.66 to 29.99 percent.
Some people are attracted to the special features of a platform, but it is important to note that several platforms have certain restrictions as well.
Many platforms offer tools to users like customer support, blogs and examples of success stories. Platforms like Indiegogo and AngelList have lengthy FAQ sections as well as an option to email for specific questions. Although this does not promise a timely response. Some sites offer more resources like YouCaring has live chat for customer support or coaching and Kickstarter produced a handbook to help its users.
It should be noted that some platforms like Pozible subscribe to the all or nothing crowdfunding model, meaning that users only receive the money if they raise at least their intended goal amount. Others employ the “keep it all model,” which allows users to keep the funds regardless if the goal amount was met. Some platforms, like Kickstarter, insist on approving projects before they go live, which can take between 48 hours to a week or longer, depending on the type of project.
Picking A Crowdfunding Platform for Your Needs
With a better understanding of the differences between crowdfunding platforms, anyone can find a crowdfunding site best suited for their project’s needs.