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[Ultimate Guide] What is Crowdfunding?

crowdfunding Sep 02, 2019

Crowdfunding can open doors! 

It can bring projects and services to life where traditional methods fail.

It is an innovative way of unlocking funding for projects and services.

In short, the benefits of crowdfunding can be vast. But first, let’s launch into a simple explanation of what crowdfunding is.

 

What is Crowdfunding? 

Crowdfunding is a process that allows project creators to reach out to a ‘crowd’ of people for small sums of money, those small sums of money when put together amass to a large amount of money.

If all the success factors for a campaign are in place, then that large amount of money will accumulate to reach your campaign goal.

'Et voila', the project or service is off the ground.

We will touch on what we mean by success factors a little further down.

 

What is a Crowdfunding platform?

A crowdfunding platform is essentially a shop window for your campaign. It provides the necessary mechanisms and structure for you to be able to gather and manage your funds securely. 

Further to that, in the majority of platforms you will find a framework that will guide you in creating a well put together campaign page. From crafting your story, creating your campaign video, to setting your target.

There is also the ability to be able to communicate with your backers and keep them updated on your campaign. This all supports the momentum of your campaign.  

Not all crowdfunding platforms will be suitable for you, or for that matter, equal in what they can offer you.

The type of crowdfunding that you wish to go for will rule out a good number of platforms that are tailored to specific crowdfunding types.

In a moment we will look at the 5 main types of crowdfunding where you can begin to narrow down your preference.

 

Is it possible to crowdfund without a third-party platform?

There are solutions where you can step away from the ready-made platforms and spread your crowdfunding wings. Perhaps convert your WordPress website into a platform using a plugin. OR, decide to create your own platform, technical abilities depending! 

We should also mention, each third-party crowdfunding platform has a unique fee structure that you should take into account when choosing your platform.

 

What fees should you look out for?

It is well worth the effort of researching your potential platforms and comparing those fee structures.

Here are three fee types you should look out for when researching:

SetUp Fee

In most cases you will find this at £0, however it is always worth double checking.

Fundraiser Fee

This is the percentage a platform takes from each pledge you receive.

Processor Fee

Most crowdfunding platforms use a third-party payment processor who take a small percentage for managing each pledge and in addition a small set charge for each pledge.

  

What projects are suitable for crowdfunding?

You would be amazed at the variety of projects that are funded through crowdfunding.

They can vary from business pursuits through to personal, wild through to wacky, useful gadgets to novelty items, etc etc.

That isn’t to say all projects are suitable for crowdfunding.

A great first step is to narrow down to the type of crowdfunding you would like to embark on (we share the five types of crowdfunding below). Once you have narrowed down the type of crowdfunding you wish to look into it is a great idea to explore past projects that have been run - can you can find a past campaign that is aligned with your project? Was it successful? 

If you research and locate a project aligned with your vision, but perhaps it failed to reach its target, do not be too hasty in being put off. 

As you read on you will come to learn of some of the success factors that you need to have in place in order to run a successful crowdfunding campaign. It is possible they didn't achieve enough of those success factors in order to hit their target. 

Right, onto the five main types of Crowdfunding!

 

What are the Five Main Types of Crowdfunding?

  • Donation
  • Rewards
  • Equity
  • Debt
  • Blockchain (ICO/IEO)

 

What is Donation based Crowdfunding?

Donation based crowdfunding is when someone will donate to your project or cause and not expect anything in return.

The motivation for someone to back your campaign is solely down to your compelling story or cause. No rewards given for this type of crowdfunding, payment is in the warm fuzzy feeling of social good!

 

What is Reward based Crowdfunding?

Rewards based crowdfunding is all about someone investing in a product or service, and being prepared to wait for you to go away and make your product or develop the service. 

In other words, the backer is looking for something in return for their investment.

As part of your campaign page you advertise to your potential backers a series of rewards or perks relating to your project. Those rewards will be a variety of different values which they may purchase throughout the course of the campaign. 

They may be tangible or intangible rewards. The values can range hugely.

It is through the reward purchases that you will build towards your goal.

Let’s look at an example:

One of my favourites… Who Gives a Crap – Toilet Paper That Builds Toilets

Now this is a past campaign, but it demonstrates how you can be a little creative with your rewards.

Let me highlighted three of their rewards, notice how the value varies:

  • LIVE HONOR ROLL TWEET

£4 GBP

To show that You Give A Crap, Simon will write you a thank you note on a piece of toilet paper, and tweet and post a photo on whogivesacrap.org’s Honor Roll - live from the toilet. Tweet your support for #WhoGivesACrap and he will @ tag you! 

  • SUPPORTER PACK

£16 GBP

A boxed 4-pack of our ‘First Edition’ toilet paper rolls + 3 buttons/badges, 3 postcards and 3 toilet roll holder (bumper) stickers for you and your friends to tell the world You Give A Crap (US and AU shipping inc.). You also get an invite to our Melbourne or West Coast USA launch party. Tweet your support for #WhoGivesACrap for a free live honor roll tweet.

  • I GIVE A CRAP THE MOST PACK

£1,233 GBP

One of the team will come to your place and clean your toilet, leaving you with a 48 pack of WGAC ‘First Edition’, a plethora of merchandise, and an unforgettable story to tell the world You Give A Crap. Plus, your name on 'First Edition' packaging and 5 launch party invites. (Add $500 for destinations over 150 miles from Melbourne, LA and NYC, but less than 100 miles from a major US or AU airport)

Remember, this is just one example of rewards based crowdfunding, there is huge project scope for this category of crowdfunding.

  

What is Equity based Crowdfunding?

This is where money is pledged in exchange for a share, or stake in a business, project or venture. 

The most well known platform in the UK is CrowdCube, you can locate further options a little lower in this guide.

A company that has utilised equity crowdfunding via the CrowdCube platform is Recycling Technologies.

Through equity crowdfunding Recycling Technologies raised £5.63 million to develop a machine to recycle waste plastic in a commercially attractive way, click here to explore their campaign page.

Suggestion: If this crowdfunding type intrigues you, a great first step would be to visit crowdcube and register yourself as an investor.

 

What is Debt based Crowdfunding?

Also known as ‘peer-to-peer lending.’ Investors receive their money back with interest. This type of crowdfunding means skipping the traditional method of bank lending!

Debt-based crowdfunding can be broken down into two types: 

Personal loans

A great platform for personal loans is ZOPA.

Business loans

A great platform for business loans is Funding Circle .

 

What is Crowdfunding on the Blockchain?

Let's move on to crowdfunding on the blockchain.

You can do this by launching an Initial Coin Offering (ICO) or Initial Exchange Offering (IEO). This works by leveraging crytocurrencies on the blockchain via an Exchange.

It can be very expensive to launch an ICO/IEO and your choice of country and Exchange is very important. Europe, Malta and Gibraltar, have moved a long way to providing a legal environment to facilitate this type of crowdfunding.

However there are some crowdfunding websites using the blockchain that are helping out the non-profit sector.

Take the BitGive Foundation for example. They have launched the world's first Bitcoin and Blockchain website for charities and non-profits.

We like the fact that you can track (in real time) project milestone via their blockchain technology.

A group that you might recognise, but not realise raised money on the blockchain, is...The Jamaica Bobsled Federation.

The Jamaica Bobsled Federation grabbed the imagination of the Dogecoin cryptocurrency community and together they had a whip around online and raised over 40,000 dollars to help the Jamacia Bobsled Federation go off the the 2014 Soshi Olympics. 

 

Two Models of Crowdfunding!

The Keep it all model, and 'The All or Nothing Model.'

 

The All of Nothing Crowdfunding Model:

You set a target of an amount of money that you wish to raise in a set period of time, however if you do not reach your target you do not get a single penny.

 

The keep it all Crowdfunding model:

You set a target of an amount of money that you wish to raise in a set period of time and regardless of whether you reach your target the amount raised is yours.

  

Why would I choose the all or nothing model?

Statistics show that backers are far more likely to back your campaign if it relies on your campaign being successful. All comes down to psychology.

 

I wanted to share some helpful resources to get you on your way:

 

Top Donation-Based Crowdfunding Platforms

 

Crowdfunding Platforms for Non-Profits

 

Top Rewards Platforms

 

Niche Crowdfunding Platforms

 

Top Equity Platforms

 

Top Debt Platforms 

 

DIY Crowdfunding

This is where crowdfunders decide to spread their wings and host their own crowdfunding campaign separate to a ready-made crowdfunding platform.

 

Who funds crowdfunding campaigns?

Instead of traditional investors crowdfunding campaigns are funded by the general public.

When we say the general public, we should emphasise strangers don’t back crowdfunding campaigns. BUT your “crowd” do. The group of people that you have nurtured to know like and trust you and are tuned into you as a business.

Summary > "The success of your crowdfunding campaign directly links to the strength of your tribe, aka 'crowd'."

If at this point you are thinking, “Blast, I don’t have a crowd!”

We would say, “There is no time like the present! Seize the day and begin building up your tribe.”

If you are unsure where to start, begin with these Top 10 Tips to Grow Your Crowd for Crowdfunding.

This is where your campaign is going to find its momentum, through participation of your crowd.

 

Reaching backers beyond your tribe

Strangers do not back your campaign...

As we said, strangers do not back your campaign, but let’s expand on this and look at three reasons unconnected people would back a campaign. 

  • They connect to the greater purpose
  • They are attracted by the rewards
  • They connect to the visual and the vision you present on your campaign page

  

What effort is required to run a successful crowdfunding campaign?

We’re glad you asked. There is a huge misconception that success when crowdfunding is as simple as hitting that “launch” button and watching the money rolling in.

If only that were true. It isn’t. BUT that isn’t to say you should leave now.

With careful effort and energy crowdfunding can unlock projects and goals, in some cases far quicker, than traditional methods ever could.

So let’s give you a sense of the work it takes to run a successful crowdfunding campaign:

  • Crafting your campaign page
  • Creating a 4-5 minute campaign video
  • Sculping your story (stories sell and backers need to buy into you – it’s not what you do, it is why you do it.)
  • Gaining press attention
  • Leveraging social media
  • Building up a healthy and engaged crowd

  

What do Crowdfunding Success Factors look like?

As you can imagine we could talk all day about crowdfunding success factors, but for now we're keen to give you an insight:

 

  • Research
    • Is your idea crowdfundable?
    • Choosing a suitable platform
    • Project Outline
    • Ideal Supporter Profile

 

  • Strategy
    • You need to be able to reach beyond your immediate crowd.
    • You need to be a trusted individual
    • Locating influencers
    • Utilising crowd building and engagement tools
    • Market Research
    • Building communities

 

  • Build
    • Crafting a brilliant campaign page
    • Defining your story
    • Campaign video
    • Refining campaign rewards
    • Setting your target
    • Email marketing
    • Campaign ambassadors
    • Audience engagement
    • Gaining Traffic

 

  • Launch
    • What you need to do on launch day
    • Press coverage
    • Sharing updates
    • Keeping your backers engaged
    • Stretch goals
    • Studying analytics

 

  • Post Campaign
    • Thank supporters
    • Compile order list
    • Inventory and fulfilment
    • Customer data management
    • And the list goes on.

 

This is by no means an exhaustive list, but hopefully it gives you a sense of the time and energy needed to run a successful crowdfunding campaign.

 

Resources to help you run a successful crowdfunding campaign:

 

The Crowdfunding Academy Community

You can gain valuable insights and knowledge from within The Crowdfunding Academy Community; Weekly Facebook Lives, Q&A, Exclusive Free Resources, Access to Project Creators, Crowd Building Strategies….click here to join the journey

 

Crowdfunding Launch Lab

If you have made your decision and wish to move ahead with Crowdfunding then we offer a 6 week online training course, Crowdfunding Launch Lab. Crowdfunding Launch Lab shares and dives into each success factor step by step to ensure you feel competent and confident in running your campaign. Click here to explore.

 

Let’s end with this little insight…

70% of Crowdfunding Campaigns Fail

But, most of the people whose campaigns failed, say they would do it all over again!

 

With the right amount of research, effort and energy there is no reason your crowdfunding campaigns should fail. 

Start your journey today by focusing on growing your crowd, so they can support you towards campaign success. Click here to check out our Top 10 Tips to Grow your Crowd for Crowdfunding.

 

To your crowdfunding success, 

Ali Selwyn

 

Check out our PDF on essential tools that will help you run a successful crowdfunding campaign!

31 page PDF - Immediate download!

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