One of the newest ways to raise funds is through crowdfunding. It is a process of raising money from many people to fund a cause, company, or project. It is a small capital from a large number of individuals raised to finance a new business venture. Investors either donate money or get rewards such as equity in the company based on the type of crowdfunding.
When a crowd comes forward to fund a business project or a business rather than one or two major investors, it is considered crowdfunding. Businesses need to capture the attention of a large number of people and convince them that the project is worthy of their investment to run a successful crowdfunding campaign.
Most of the crowdfunding campaigns happen over the internet platforms and have time frames to disclose specific monetary goals and when money can be raised.
Types of Crowdfunding models
There are four types of crowdfunding models, each of them receiving money from interested donors. They are as follows:
- Donation-based crowdfunding h4>
Donation-based crowdfunding is a type of campaign with a person or company expecting funds and won’t provide anything in return to the contributors. In this type of campaign, donors give money or other resources to an entity or a person running the campaign just because they want to support the idea or cause. Donation-based crowdfunding usually works well for charities, fostering social causes and community projects.
- Debt-based crowdfunding
In a debt-based crowdfunding model, a company or person running the campaign is essentially looking to borrow money from multiple people. The individuals who are lending money to the organization receives a binding commitment from the person or enterprise to repay the amount at set time intervals and interest rate.
These campaigns are popular, particularly with entrepreneurs who are not willing to immediately give up their equity in their startups and have access to other types of loan facilities.
- Reward-based crowdfunding
Reward-based crowdfunding can be described as a funding campaign, where People contributing money can expect to receive varying levels of rewards in return for their contributions the correspond to their contributed amount. The reward can typically consist of the product or service of that particular company running the campaign produces or some specific discounts on these products. It is considered the most popular type of crowdfunding and works well for consumer goods and other tangible products.
A person contributing money can expect to receive some ownership in the company, raising funds through an equity-based campaign. In other words, the enterprise is selling a piece of ownership to each crowd member that contributes money. These campaigns are used mainly by startups or entrepreneurs seeking an alternative to traditional capital investors when looking for capital to take their business to the next level.
Essential Factors to consider while choosing a crowdfunding platform
- Purpose of the crowdfunding campaign
The Purpose is a piece of essential information, especially for those using online platforms to raise funds for the first time. It is crucial for people to understand the purpose of the campaign. People or organizations with little experience in online fundraising neglect this step while planning their crowdfunding campaign.
However, the purpose of the campaign will have a significant impact on choosing the ultimate platform. Not all campaigns support the same type of crowdfunding campaigns or reach the same audience. Therefore, understanding the purpose of your crowdfunding campaign is crucial before choosing the right platform.
- Fee Structure of crowd funding platform
With several crowdfunding options available, one of the crucial elements before researching these platforms is the pricing and fee structure of each of these crowdfunding platforms because it directly impacts the final fundraising results. The crowdfunding fee and payment structures are vital to maintain their operations and make profits. Crowdfunding platforms usually follow a variety of fee structures such as percentage platform fee and credit processing fee.
- Customization option of the platform
The crowdfunding platform’s customization option will have a direct impact on the effectiveness of your marketing strategies. An effective platform should provide customization options to promote and brand your campaign.
It should provide options like uploading the organization’s logo to reassure the authenticity, customizable description to describe your goals and rewards that are offered, add custom media including videos and photos, and share the campaign across social media platforms easily. It should also provide you with tools to promote the campaign in the right way with active customizing options.
- Platform Restrictions
Before choosing a particular crowdfunding platform, always make sure to check the restrictions of the platform. Some of the crowdfunding platform’s typical restrictions include the inability to adjust the duration of your campaign, conditional final payouts, and complicated or restricted direct orders. Carefully choose the right platform depending on the mission of the campaign and the amount to be raised.
- Payment Methods
For successful fundraising, the platform chosen by you should provide a flexible payment gateway for the donors who are willing to contribute. Flexibility and multiple payment options invite more donors by making the process easier. Therefore, make sure to choose a platform that has flexible payment options.
For a successful crowdfunding campaign, it takes a lot of effort to establish a project that will be perceived as a valuable service by investors to come forward and support your initiatives and ideas.
With various platforms available for crowdfunding, businesses should choose the right platform for their crowdfunding campaign based on their campaign goals and the amount required to be raised. For a successful crowdfunding campaign, prepare a proper plan for the campaign before its launch and spread awareness about it. Promoting the campaign on social media will enable potential investors to reach you easily.