Crowdfunding has become quite trendy. In fact, even people with a lot of money like Zach Braff and Spike Lee are turning to these platforms to fund a project that they want full artistic control over. And having full control over your project is just one of the benefits of these sites (aside from the obvious one: money to fund a project or cause of yours).
Let’s take a look at the other benefits to posting a project/cause on one of these sites in order to fundraise, and then look at 5 of the most popular crowdfund websites.
What is Crowdfunding?
Crowdfund sites, in the most basic form, are a way for people to fundraise for their particular passion project, cause, or anything else.
How a Crowdfund Website Works
There are two main business models any crowdfunding site can follow. The first is to be a donations-based model, and the second model is an investment-for-equity model.
- Donations-Based Model: In this model you are asking people to donate to your cause or passion project, or whatever you have listed on the site. This is a goal-based campaign, and typically a perk of some sort is offered to the donators (such as rewards or product-based perks).
- Investment-for-Equity Model: This model of crowdfunding is specifically because of the upcoming implementation of the JOBS Act. In a nutshell, people who were not worth a million dollars in assets (not including a home) were legally not allowed to invest in private early-stage businesses/startups. With the passing of the JOBS Act (implementation of the part that deals with this is due for late 2014), people who earn less than $100,000 (or have net worths below $100,000) will be allowed to invest up to 5% of their income and people who earn/have net worth over $100,000 can invest 10% in early-stage businesses/startups. It’s an investment, so they will be giving money in return for equity or debt in the company (becoming either part owners or part shareholders). You can imagine that the change in law is going to open up a lot more crowdfunding opportunities for both people and entrepreneurs in the months to come.
5 Popular Crowdfund Websites
- Kickstarter: This is a donations-based website centered on creative projects. Categories include Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater. So far, over $980 million has been raised for various projects on this site. The fee Kickstarter collects upon successful campaign completion is 5%, and US based payments are made through Amazon (which has another 3-5% fee). There is a 50% fundraiser completion success rate.
- Indiegogo: This site allows donation-based campaigns on virtually anything (except investing). With this website, there is a fee involved out of your own pocket if you do not raise the full goal amount. Indiegogo charges you 9% of the funds collected, then if you reach goal completion, they refund you 5% for an overall fee of 4%. This is because you get to keep the funds you receive, even if you do not reach your goal. For registered 501(c)(3) organizations, there is a 25% reduction in fees. Note that there is also a 3% fee for donations made on a credit card.
- Crowdfunder: This site offers a blend of donation-based campaigns and investment based campaigns, with a specialty in localizing the investment process (finding local companies to crowdfund). In fact, the CEO took a leadership role in the passing of the JOBS Act. To raise up to $250,000, the cost is $99/month. To raise up to $500,000, the cost is $299/month. Finally, to raise unlimited funds, the cost is $999/month.
- CrowdRise: This is a donations-based crowdfund site to raise money for causes and charity work (the tagline says it all: if you don’t give back no one will like you). Credit card fees are 2.9% plus 30¢ per transaction (tacked onto each of the plans that you can choose). The Basic, “free” account will cost you 5% in fees, while the Featured account will cost you 4% in fees and $49/month. Get the Royale account for $199/month plus 3% of funds raised. Even Bret Michaels has a charity listed on here with over $78,000 in donations collected!
- SomoLend: This site is focused on raising funds for small business loans. The idea is that by borrowing a little bit of money from family, friends, and customers, you will grow a loyal fan base that will also help your business grow. Also, as a small business owner, you can expect to pay less on interest for these loans than you would through a traditional bank. Note: at the moment, unfortunately they are not accepting new small businesses. Check back if you are interested!
Have you ever used a crowdfund site? What project did you post on there? Did you get your goal completely funded?