Is crowdfunding the best way for you to secure the money you need? In this simple guide, you will discover everything you need to know about crowdfunding and how to make it work for you.
The term ‘crowdfunding’ was first coined by the writer Michael Sullivan on his blog in 2006. The practice, however, has been going on for far longer than that. Joseph Pulitzer was one of the first in recorded history to source money from donors to finance the base for the Statue of Liberty in 1885.
As the legend goes, Mr Pulitzer launched a massive fundraising campaign in his newspaper ‘The New York World’ – calling for donations to help fund the statue’s granite base. In just five months, over 160,000 donors contributed to what would become the first major crowdfunded project in America.
Fast forward to the internet age, and funding by ‘the crowd’ has become a popular way to source money for ventures, projects and causes all over the world.
And now it’s your turn.
We have collected every relevant question that you need to answer, to decide whether crowdfunding is the right fit for your goals. In this ultimate guide, we strip away the mystery and tell you exactly what you need to know about crowdfunding and running successful campaigns.
This straightforward guide was designed to give you clarity on specific terms, practices and tactics that are often used when someone wants to dip their toes into funding from the crowd.
You can also discover some amazing crowdfunding ideas (#47 and #48).
Once you have gleaned a solid understanding from this guide, you’ll be able to confidently launch and run a crowdfunding campaign of your own – one that makes actual money!
In 2018, some $61 billion dollars was raised through crowdfunding platforms in the US. Join tens of thousands of people who are leveraging the power of crowdsourced finance in 2021.
From clear definitions, vivid examples, and a simple step-by-step process – we will take you from curious to clued-up by the end of this post.
Here is crowdfunding explained.
What is Crowdfunding?
To define crowdfunding, consider the identical term – ‘crowd fundraising.’
Crowdfunding is a way to raise large amounts of money, by collecting small contributions from a lot of individual supporters.
This is usually done through a platform or page that is shared to networks of people on social media to attract financial support for the goal. There are often tiered incentives to donating or investing money in a crowd fundraiser, depending on the amount the supporter contributes.
So, this crowdfunding definition is quite literal – it is a crowd that funds your goal, whatever that may be, in return for an incentive or reward. Some goals include starting a company, creating a product, or funding a cause.
The incentives on the other hand, can be anything from cause-related merchandise for nonprofit crowdfunding, to a product prototype for early supporters of a start-up. Tiering systems on the platform itself make it easy to attract a variety of donors at different donation levels.
The larger the donation or contribution – the bigger the incentive.
Crowdfunding is an umbrella term for sourcing funds from many different networks. But what is a crowdfunding campaign? A person or organization launches a campaign to inspire the donations or investment that they need.
The campaign includes all the working parts of fundraising from the crowd and ends once the financial goal is achieved, or the scheduled time runs out. You will define crowdfunding according to your unique campaign parameters and goals.
What is Crowdfunding Used For?
The purpose of crowdfunding is to source money or capital in a non-traditional way.
Before the internet made crowdfunding a viable way to raise money, people had to source investment in more traditional ways. To develop a product, start a company, or fund a cause would require money from private investors, friends, and family, or in many cases – a bank loan.
The process of securing conventional capital is time-consuming and it limits the freedom of the individual sourcing the money.
Traditionally, companies need to create a comprehensive business plan, conduct intensive market research, and secure proof of concept before finding the money to achieve their goals.
Pre-investment is often required to build prototypes and test markets – enough to show investors that the risk is worthwhile.
With crowdfunding, a lot of this is not necessary. Instead, the company (or individual) uses the platform to showcase their idea and pitch it to the general public. If the idea connects with people, they will decide to contribute to funding the campaign goal.
Hundreds, even thousands of people can end up contributing towards the campaigner’s dream. There are various applications for this type of fundraising, but it fits almost any model.
Here is what crowdfunding is used for:
Business and Startups:
When a start-up firm or small business wants to raise money without garnering any debt or giving away company equity, they choose funding from the crowd.
Nonprofits:
It’s tough finding investors for certain nonprofit projects or causes, which is why this niche values crowdfunding so much. Lots of people donate a little to support the nonprofit campaign.
Real Estate:
Investment opportunities can be challenging for developers and investors who don’t have a broad investor network. Crowd fundraising helps them raise the capital they need.
Pets:
Whether it’s for a dog’s surgery or to keep the local animal shelter going for another month, these campaigns involve the public in contributing much-needed funds.
Investors:
For high risk, high reward early investments, young investors can contribute an amount of money to a company looking for financing on a crowdfunding platform.
Education:
To avoid student debt, some individuals raise money this way to acquire their education. Educational institutions and schools also seek this funding for various initiatives online.
Musicians:
Many musicians need financial support to make their music, tour and produce albums. Crowdfunding is an extraordinary way to source financial support from many fans and followers.
Medical expenses:
Accidents, illness, and surgical procedures can cost a lot of money. When an individual can’t afford them, their family turns to the crowd to find another way to get them well again.
Films:
Filmmakers choose to outline their ideas in public to raise financial support for their film projects. Movies, series, and independent films are often financed this way.
Artists:
Much like musicians, artists need financial support to create their art and travel. Illustrators, painters, graphic artists, sculptors, and more use crowdfunding for projects and shows.
How Does Crowdfunding Work?
The crowdfunding process starts with a goal that requires funds to realize.
The most common route to realizing that goal, is to sign-up with a crowdfunding platform so that a campaign can be launched into the world.
Your choice of platform is critical to this process and you should know how to use crowdfunding to make money online. This is a marketing practice more than anything else.
Campaigns need rich media and lots of information about the goal, to arouse the interest of potential supporters. These supporters will often see an advert or post about the campaign on a social media network.
They will click over to the campaign page (also called the crowdfunding page) to check it out. There, they will watch videos, see images, and read important information about the goal – along with ways they could be a part of bringing it to life.
This is the essence of how crowdfunding works – the supporter will believe in your goal and will pick an incentive which comes with a dollar amount that they will contribute. The campaigner will continue to promote their page until the preset fundraising goal is achieved.
A Summary of Elements:
- The goal: What you intend to do with the money you want to raise
- The platform: The tools you will use to achieve fundraising success
- The page: This comes from the platform you choose, and it houses your campaign content
- The incentives: Tiered rewards that supporters get according to how much they contribute
- The fundraising goal: A progress bar and a timed, running total of your contributions
- The campaign: The content and promotions used to attract contributing supporters
It’s not uncommon for campaigns to be funded well beyond their preset goal. Campaigns end when the goal is funded, or when the timer runs out.
What are The Pros and Cons of Crowdfunding?
One of the first questions people ask is – why use crowdfunding at all? The answer is simple: there are a lot of compelling benefits that outweigh one or two risks.
A few years ago, when technology wasn’t as advanced as it is now, and platforms were still working on security and verification practices, there were more risks than there are today.
Let’s start by reviewing the pros.
The Advantages of Crowdfunding:
- Flexibility: This kind of fundraising comes with a lot more flexibility than your average loan or equity deal. If you can’t find investors and you can’t get a loan or don’t want one – this is a step in the right direction.
- Opportunity: Sometimes it allows unproven concepts to validate their merit in the public space. This acts as a stepping-stone to bigger deals, prototype developments or expansions that lead to successful alliances, acquisitions, or investments down the line.
- Public Reach: When you decide to crowd fundraise, you tend to reach a lot more people than you would have sitting down with some investors. Not only does this provide the money that you need, it creates genuine supporters for your goal, a community behind your ideas – and potential to tap into that community of support in the future.
- Time-saver: One of the best benefits of crowdfunding is the time-saving aspect. Your platform page will centralize your campaign efforts and setting up a campaign is quick and easy. This central online location is ideal for attracting and winning supporters. Plus, many platforms offer instant access to the funds that you raise.
- Easy to Promote: Thanks to the central nature of your page, all of your online promotions will be more effective. Page links can be used in several marketing tactics to create a streamlined process that increases your chances of achieving your goal.
Now the cons.
The Disadvantages of Crowdfunding:
- Some theft: There is a risk that someone will see your idea or concept online and steal it. This is a superficial risk however, and if your ideas are great, they will be hard to steal.
- Content can be tricky: Putting together a persuasive description and creating the additional video and image content to garner support can be challenging.
- It might not work: Like most capital raising practices, the biggest risks of crowdfunding are that no-one will want to support your goal. Campaigns do fail, which is why it’s important to pick the right crowdfunding partner, and promotional methods.
What Types of Crowdfunding are There?
There are 5 main types of crowd fundraising that you need to know.
1: Donation-based Crowdfunding
When your supporters choose to contribute money to your goal, without getting any incentives or rewards in return – this is donation-based crowdfunding. This often happens in the nonprofit, cause-related (pets, medical expenses) space.
Your supporters are happy to give you altruistic donations. Sometimes, there are tiered rewards to encourage donations.
2: Rewards-based Crowdfunding
As the name suggests, this type of crowdfunding is based on the rewards and incentives that your supporters receive for their financial contributions. The incentives are usually related to the goal – a form of the product being developed, or merchandise in support of the project.
3: Equity Crowdfunding
When a private company wants to raise money online, they will use this crowdfunding model to do it. In exchange for investors contributing money towards their company, they get equity (securities) in return. The big difference here is that company ownership is the ‘incentive’ on offer, with the potential financial returns that go with it.
4: Debt Crowdfunding
With this type of crowdfunding, many investors lend money to a business or individual who needs it. The investors (lenders) get financial returns on their loan amount, and the company or individual doing the lending gets better rates than a bank would offer.
5: Royalty-based Crowdfunding
The same model we know and love, but supporters receive a percentage of revenue back from the individual or company in return for their contribution, once it starts making money. This is called a royalty, and it’s popular in the technology space.
What Successful Examples of Crowdfunding Exist?
Here are a few successful crowdfunding campaigns that we sourced from our client list. These are great examples that demonstrate what is possible when you want to source funds from the crowd.
Here are examples of successful crowdfunding campaigns on RallyUp:
Equine Therapy for Special Needs Kids
The goal: Raise money to support a therapeutic riding program for kids with special needs.
This campaign was to provide much-needed financial support to a program that used horseback riding as a therapeutic tool for kids with a range of disabilities. Keeping horses is expensive, and the program operators needed donations to keep the program free for the kid’s parents.
It used a video news report, and a descriptive write-up to secure $10,650 in crowdsourced funds.
The Clean Water Project
The goal: Raise money to provide communities-in-need with clean water infrastructure.
The Water Around the World Campaign set a goal to raise $100,000 for their Clean Water Project. With team fundraising functionality, anyone could start a fundraiser to contribute. It also offered tiered donation levels targeting different supporters.
Multiple fundraisers resulted in $84,650 in crowdsourced funds being raised for their project.
14th Annual Autism Walk
The goal: Raise money for several initiatives run by The Autism Society of Southern Arizona.
For this fundraiser, The Autism Society organized an annual walk. They set up team fundraising to allow people to donate to their cause on RallyUp, and to run their own fundraising pages. With a registration fee donation, the walk was a great success.
In total this crowdfunding campaign raised $82,535 for autistic kids.
How do I Start a Crowdfunding Campign?
You’ve learned a ton about crowdfunding, now you’re going to learn how to run a successful crowdfunding campaign. Don’t worry – here are the exact steps you need to get started.
Step 1: Do it Today
Sign-up for a free RallyUp account.
Our platform is super customizable, and we don’t charge you any platform fees. You can go from zero to a fully customized, professional looking crowdfunding page in seconds.
Step 2: Customize Your Page
An informative, customized page is the key to crowdfunding success. Spend some time customizing every element – from the fonts you choose, to the images you upload. Make your page sing!
Learn more about customization here.
Step 3: Add Your Incentives
While you are customizing the page, consider the incentives you want to offer your supporters. Tier these incentives so that you inspire every kind of supporter, no matter their income.
Step 4: Leverage One-Click Social Sharing
Tap into the power of social sharing with our one-click tool and let everyone know about your campaign. Spread it even further with free text messages to lead donors back to your page.
Step 5: Add More Components
One of the best things about using RallyUp is that you can add other types of fundraisers to the one you just created. These unique experiences make it so much easier to raise money! Pop in a raffle, or a live event to spice things up and inspire more donations.
Stick a fork in your campaign – it’s done!
Which Crowdfunding Platform is Best?
To round off this A-Z guide on crowd fundraising, here are the top 5 crowdfunding platforms online.
These are the best crowdfunding websites online right now. They each provide excellent services to individuals and businesses looking to raise money on the internet.
If you want to get started right now, there is no better platform than RallyUp. We have spent years shaping our features to help you succeed at any goal that you set for your campaign. Because your goals deserve a great platform, we have removed all the barriers to using our full package, for free.
