To give life to your dream of a business startup, the first and foremost thing you need is enough money. However, financial support is a crucial aspect to shape an idea and bring it to fruition. Oftentimes, many business ideas fail due to the incapability of arranging funds. However, a new trend of crowdfunding to support talented people has emerged in recent years. Crowdfunding has revolutionized the investment sector, supporting countless young entrepreneurs in disrupting markets and driving change. Its popularity has soared, with global platforms raising a staggering $34 billion. Mobile devices have also played a significant role, contributing 17% of all donations in the crowdfunding landscape.
What is Crowdfunding?Crowdfunding is a method that allows people to support a project by generating small amounts of money but crucial donations. It serves as a catalyst for startups to scale quickly and has become a thriving industry. Software development organizations can create effective crowdfunding platforms for entrepreneurs and businesses.
Types of Crowdfunding?
Equity Crowdfunding:Equity crowdfunding involves raising funds online from investors to assist businesses in the financial sector. Investors receive equity ownership in the firm based on their investment. Popular equity-based crowdfunding platforms include AngleList, MicroVentures, and Fundable.
Donation Crowdfunding:Donation crowdfunding is focused on supporting social causes and helping individuals without seeking financial profit in return. Well-known donation-based crowdfunding platforms include GoFundMe and RocketHub.
Peer-to-Peer Lending:Peer-to-Peer lending removes individuals or businesses to take loans directly from other people, and this method vacates the requirement of any mediator. The money committed by supporters is a loan that must be repaid by a certain deadline at an agreed-upon interest rate. Lending Club and Prosper are examples of peer-to-peer lending crowdfunding.
Reward Crowdfunding:Reward crowdfunding involves individuals contributing to a company or crowdfunding project with the expectation of receiving non-monetary benefits in return, such as goods or services. The amount of money varies depending on the contribution level. Kickstarter and Indiegogo are popular reward crowdfunding platforms.
Human Capital Crowdfunding:Human capital crowdfunding enables individuals to generate funds for personal growth or initiatives. Investors have the opportunity to fund a project in exchange for a share of the winnings. Athletes, for example, may crowdfund money to pursue their sports careers and share a portion of their earnings with investors.
Real Estate Crowdfunding:Real estate crowdfunding in business provides people with opportunities to invest in real estate ventures. Real estate crowdfunding especially useful for those who want to invest in real estate but don\’t want to deal with contractors, mortgage brokers, or real estate agents. CrowdStreet and DiversyFund are examples of real estate crowdfunding.
Profit-sharing/Revenue-sharing Crowdfunding:Profit-sharing, sometimes known as revenue-sharing, is a fundraising strategy that provides lenders with recurrent payments based on the financial performance of the firm. Businesses can donate a portion of their sales income or a percentage of their pre-determined net profit quarterly or yearly.
Most Popular Crowdfunding Platforms in 2022
Kickstarter:Kickstarter is a public benefit organization founded in Brooklyn, New York, that operates a global financing platform centered on creativity. The declared purpose of the firm is to \”assist in bringing creative concepts to reality.\” As per the official website of Kickstarter, they have funded 224,092 so far. The platform is reward-based crowdfunding and it helps talented people in films, music, stage plays, comics, journalism, video games, technology, publishing, and food-related ventures. Platform Fees – 5% plus 3% – 5% processing fees Price – Free CEO – Aziz Hasan
Indiegogo:Indiegogo is a crowdfunding website in the United States that was started in 2008 by Danae Ringelmann, Slava Rubin, and Eric Schell. It is based in San Francisco, California. The website was among the first to provide crowd financing. Indiegogo allows users to raise money for their ideas, charities, or new businesses. Contributions on Indiegogo are subject to a 5% fee. This fee is in addition to the Stripe credit card processing fee of 3% plus $0.30 per transaction. Every month, 15 million individuals visit the website. Platform Fees – 5% Price – Free Funded – 800,000 + creative ideas CEO – Andy Yang
Patreon:Patreon is a one-of-a-kind crowdfunding network that specifically caters to artists, musicians, podcasters, bloggers, and producers. It operates on subscriptions rather than crowdsourcing. It removes the necessity for limited-time promotions. Instead, it concentrates on cultivating a devoted following and generating recurring revenue through premium memberships. Regular creators can gain greatly because subscribers can cancel at any moment. Creators may keep people interested by providing behind-the-scenes or unique content. Platform Fees – Three-tier model 5% (lite), 8% (Pro), 12% (premium) on monthly earned income plus processing fees Price – Free CEO – Jack Conte
GoFundMe:GoFundMe is a platform for online crowdfunding and fundraising that allows you to gather funds for your cause. It has no platform costs, however, it does charge a tiny proportion of transaction fees and 30 cents for each gift. More than $5 billion has been raised for personal or corporate interests. You may retain anything you raise, whether it is more or less than the target. People frequently provide charity to trustworthy or close sources since it permits donations. It makes soliciting funds through the site more difficult. It is preferable for emergency or medical care purposes. Platform Fee – Free (2.9% processing fees and $0.30 for every donation) Price – Free CEO – Tim Cadogan
WeFunder:Wefunder allows you to raise investments ranging from $50,000 to $50 million. You can run a brewery, a restaurant, a software venture, or a fashion company. The app has access to over 150,000 investors. Within fifteen minutes, you may set up a free account and begin raising funds. It might take anything from one to three months to achieve your venture\’s aim. There are no transaction or administration fees. Wefunder\’s operating expenses are covered by administrative charges. The first investment is $100. The app links young aspirants with skilled and experienced experts so that they may benefit from their knowledge. Platform Fees – Only administrative charges (no processing or transactional fees) Price – Free CEO Russell Smith
Features Required For Your Crowdfunding Platform:
- Admin Account
- Account Management
- Managing Transactions & Investments
- Managing Projects and Catagories
- Customer Support
- Platform Registration
- Profile Management
- Project Exploration
- The setting of Payments & Investments
For Platform Owner
- Account Creation
- Managing the Profile
- Project Management
- Investment Management
Advanced Features for the CrowdFunding Platform:
Community Establishment:A crowdfunding platform should be designed so that users can readily engage with one another. It will assist them in announcing anything, such as contests, awards, scholarships, and internships. It will also increase the amount of feedback on start-up initiatives, increasing the likelihood of improvement.
Project Support & Assistance:Many start-ups or businesses do not understand what they need to accomplish on crowdfunding sites. They are unsure about the procedure and how they may obtain financing. As a result, you must give them guidance or support in order for them to comprehend how to use the platform.
Confirmation and Reminders:On a crowdfunding site, numerous factors must be addressed, such as user engagement, having a reminder feature that may remind you of crucial emails or actions to be added, and so on. You must be aware of everything as the owner or creator.
Calculating the Funds:This sophisticated function will assist businesses in calculating the precise amount of revenue raised, earned commissions, taxes, or payments. This automated computation tool will make the program more enjoyable and convenient to use.
Pre-launch Page:As per this feature, you can build a page for a campaign that you have not yet launched. It attracts investors and individuals and piques their curiosity about what\’s on the horizon.
How Do Crowdfunding Platforms Make Money?A crowdfunding website is more than simply a place to raise money through donations and other means. It may be utilized as an inventive concept to generate a lot of money. Let\’s look at some of the numerous monetization strategies that may be used on a crowdfunding site.
Membership Fee:Membership Fee is the most common method of earning money, in which the platform charges customers monthly or annual fees for subscription or membership. For example, Fundable charges customers $179 a month to raise funds.
Success Fee:Success fee kind of monetization enables the platform to get a proportion of the total money raised by the campaign. Indiegogo, for example, levies a 5% fee to its users.
Loan Processing Fee:Loan-based or peer-to-peer crowdfunding platforms often employ a loan processing fee strategy. They charge a percentage of the money lent by users as a processing fee. For instance, platforms like Landbay may add a 2% to 2.5% fee to each loan and charge 0.5% to 1% on the total loan balance annually. This allows the platforms to generate revenue from the lending transactions facilitated on their platform.
Ads and Promotion:Crowdfunding platforms can generate revenue by displaying advertisements from businesses on their website. Businesses pay a fee to the platform for promoting their products or services. This allows crowdfunding platforms to offer free campaign options for non-profit groups, as they generate income through advertising and promotions.
Part of Future Sales:Instead of taking a percentage of the overall funds raised, some crowdfunding platforms are taking a percentage of the campaign creator\’s future earnings. This tactic, used by websites like PledgeMusic, entails taking a portion (15%) of the creator\’s future earnings.
Six Crucial Steps in Developing a Crowdfunding Platform
Organize a Market AnalysisGaining market knowledge before using development services is beneficial. Analyze rival platforms, including their types, success rates, target audience, and social media presence, to make informed decisions.
Implement Your Business PlanAligning your goals and plans is crucial, so ensure you have a clear understanding of the development process and budget planning. Sufficient funding is essential to create a well-designed crowdfunding platform, as it contributes to its success. Consider building a community on the platform to engage more fundraisers and gather support during the development process.
Have an engaging UX DesignTo create an engaging website, it\’s crucial to partner with a website development organization that has experienced developers and skilled UI/UX designers. They will make sure your website has clear, convenient features, is visually appealing, and attracts the attention of your target audience. A good UX design incorporates user-friendly interfaces, flexibility, pleasant aesthetics, and harmonious color combinations.
Platform DevelopmentWriting the site code, whether from scratch or utilising templates, comes after the website design phase is finished. Developing a crowdfunding platform can be challenging due to legal regulations. Choose the best development approach, integrate necessary third-party APIs, and engage experienced crowdfunding website developers for a scalable solution.
Testing StageOnce you\’ve developed your website, it\’s crucial to conduct thorough inspections to ensure it meets the intended capabilities and features. Security and fast performance are key for crowdfunding platforms, minimizing user wait times. If any bugs are found during testing, immediate fixes are necessary to maintain a smooth user experience.
Building an MVPLaunching an MVP at the beginning of the development process helps assess the market and audience response. It\’s a cost-effective way to gain market dominance and improve the solution based on user feedback. After releasing the basic functionality, you can enhance the crowdfunding platform with new features based on user input.
Cost Estimate for Website Development Process
The cost of developing a crowdfunding website varies depending on factors such as starting from scratch or using an MVP version. Analyzing time, cost, and market research is crucial. For instance, creating a website like Kickstarter can range from $15,000 to $25,000, excluding additional sophisticated features. Other factors affecting cost include functionality, developer location and expertise, legal entities, licenses, team structure, and technology stack.