The Ultimate Guide to Crowdfund Your Business

Crowdfunding has become a game-changer for businesses, allowing them to raise funds from a large number of people, typically via the internet. With the right strategy, you can tap into this massive potential.

You can choose from various crowdfunding platforms, such as Kickstarter, Indiegogo, and GoFundMe, each with its own unique features and fees. For example, Kickstarter takes a 5% fee of the total amount raised, plus payment processing fees.

Crowdfunding can be an effective way to validate your business idea and build a community of supporters. According to a study, 63% of Kickstarter projects are successfully funded, indicating a strong potential for return on investment.

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Crowdfunding is a low-risk way to fund your business, allowing you to retain full control of your company.

You don't have to repay crowdfunders if your plan fails, which is a big advantage.

Crowdfunding platforms are different, so make sure to read the fine print and understand your full financial and legal obligations.

Crowdfunders expect a "gift" from your company, such as your product or special perks, in exchange for their contribution.

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Crowdfunding is a way to raise funds for a business from a large number of people, known as crowdfunders. These individuals don't expect a financial return on their investment, but rather a "gift" from the company in the form of a product or special perk.

Crowdfunding is a popular option for creative projects, such as documentaries or physical products, like high-tech coolers. This is because it allows business owners to retain full control of their company and avoid repaying crowdfunders if the project fails.

There are different types of crowdfunding, but the exact distinctions can be confusing. Let's break it down:

To determine how much funding you'll need, consider your personal financial situation and vision for your business. This will help you figure out how to get the funding you need.

The Republic is a platform that allows businesses to raise funding through crowdfunding. Fewer than 5% of applicants are accepted, but 90% or more of those businesses meet their minimum funding goals.

Campaigns on Republic can run for 60 days. The platform takes a commission of 7% of the cash money raised and 2% of the securities issued, plus payment processing fees up to 2.25%.

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There are three main types of crowdfunding: rewards-based, equity-based, and donation-based crowdfunding.

Rewards-based crowdfunding is a popular option for small business owners, where donors receive a product, service, or small gift related to the project, with the value depending on the amount donated.

A $5 donation might be rewarded with a handwritten thank you card, while $50 or $100 might bring early access to your company’s product or service.

Rewards-based crowdfunding can be a good option for small business owners looking to get their business off the ground without giving up equity in their business or taking on loan payments.

Equity-based crowdfunding, on the other hand, allows small businesses and startups to give away a portion of their business in exchange for funding, with donors receiving shares in the company based on the amount of the contribution.

Contributors typically choose to invest in companies they believe will be successful in the future, as the success of the company directly influences the return on donors' investments.

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Some studies have indicated that gender can play a role in the success of a campaign based on funding type, with women entrepreneurs doing better with rewards-based crowdfunding and men entrepreneurs doing better with equity-based crowdfunding.

Donation-based crowdfunding is the simplest type of crowdfunding, where someone gives money for nothing in return, but it can be extremely rewarding, attracting loyal supporters who are passionate about your work and may choose to give again.

Fundable offers equity-based crowdfunding at a monthly fee of $179 to use the platform, with equity fundraising goals ranging between $10,000 and $10 million, and no deadline for your campaign, but you must renew it every 90 days.

Kickstarter, Indiegogo, and GoFundMe are popular crowdfunding websites that attract hundreds of thousands of people hoping to create or support the next big thing.

Each platform has its unique features, but they all share the same goal of helping creators raise funds for their projects. Indiegogo, for example, started as a crowdfunding site for independent films but expanded to all project categories a year after its 2008 launch.

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Indiegogo offers flexible funding options, allowing campaigners to receive funds as they come in or wait until the target is reached. This flexibility might be easier and less risky for a campaigner, but it's essential to note that campaigners must still deliver on any promises made.

GoFundMe is the largest crowdfunding platform, having raised over $30 billion since its founding in 2010. It's most popular for individuals seeking to recover from medical expenses or disasters.

Before choosing a crowdfunding platform, be sure to examine the fee structures, which range from 5% to 12%. Indiegogo, for instance, charges a 5% fee on the funds raised for your campaign plus 3% payment processing fees.

Kickstarter, on the other hand, releases funds only if the campaign meets its funding goal. This fixed funding model is associated with much less risk for backers, but it might be less attractive to campaigners who prefer flexible funding options.

Indiegogo's flexible funding model allows campaigners to keep the funds raised even if they don't meet their campaign goal, and they can continue to raise funds after their deadline through Indiegogo InDemand.

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To start the crowdfunding process, you'll need to open an account with a broker-dealer or funding portal. This is the first step in investing in a crowdfunding offering.

You'll have up to 48 hours prior to the end of the offer period to change your mind and cancel your investment commitment for any reason. This is a crucial deadline to keep in mind.

Before launching your campaign, you'll need to complete a business profile on the crowdfunding platform. This may involve a review process to ensure your application meets the platform's requirements.

Once you've set up your campaign, you'll need to set a funding goal and a deadline. Some platforms allow you to keep the funds you raise even if you don't reach your goal, while others don't.

Crowdfunding platforms typically earn revenue by taking a percentage of the funds raised. For example, Kickstarter applies a 5% fee to the funds collected.

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As you run your campaign, it's essential to track your progress and share updates with your audience. A fundraising thermometer can be a great way to motivate donors to help you meet your goal.

To maximize your campaign's success, pair its launch with effective marketing strategies. Share the crowdfunding project on social media, run an email campaign, and collaborate with partners to spread the word further.

Crowdfunding may not be the best solution for long-term business financing.

There are other ways to fund your business beyond crowdfunding. Crowdfunding may work to secure startup financing and generate interest in your product, but it may not be the best solution for long-term business financing.

Some alternatives to crowdfunding include seeking out investors, applying for small business loans, or using grants.

For another approach, see: Venture Capital Finance

Venture capital is a type of funding that can be obtained from investors in exchange for an ownership share and an active role in the company.

Venture capital typically focuses on high-growth companies, making it a good option for businesses with rapid expansion plans.

Investors who provide venture capital invest capital in return for equity, rather than debt, which means it's not a loan.

This type of funding takes higher risks in exchange for potential higher returns, and has a longer investment horizon than traditional financing.

Almost all venture capitalists want a seat on the board of directors, which means you'll have to give up some portion of control and ownership of your company.

Here are some key characteristics of venture capital:

The Small Business Administration (SBA) offers several investment programs to support small businesses and entrepreneurs.

The SBA's Microloan Program provides small, short-term loans up to $50,000 to help small businesses cover startup costs.

The SBA's 7(a) loan program is the agency's primary program for small business loans, offering up to $5 million in funding for a variety of business purposes.

SBA Express loans have a faster processing time than traditional 7(a) loans, taking as little as 36 hours to approve.

The SBA's 504 loan program provides long-term, fixed-rate financing for major fixed assets, such as real estate or equipment, with a minimum loan amount of $25,000.

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Crowdfunding may not be the best solution for long-term business financing.

Venture capital and angel investors can provide the necessary funding for growing businesses.

Bootstrapping is another option, where entrepreneurs use their own savings or revenue to fund their business.

Crowdfunding may not be the best solution for long-term business financing, as it may not provide the necessary stability for a business to thrive.

Loans from banks or alternative lenders can also be a viable option, especially for businesses with a solid financial history.

Crowdfunding may not be the best solution for long-term business financing, as it may not provide the necessary stability for a business to thrive.

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When selecting a crowdfunding platform, it's essential to consider the fees involved. Credit processing fees are a small percentage of each monetary gift, covering data transmissions, transaction authorizations, and funding deposits.

To minimize costs, look for a platform that offers donors the choice to cover processing fees. This way, you can avoid paying these fees yourself.

When evaluating a platform's pricing and fee structure, consider the percentage platform fees. Most services deduct a fee from the total amount raised, so it's crucial to factor these fees into your fundraising goal.

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To successfully crowdfund, it's essential to understand the fees associated with each platform. A small percentage of each monetary gift to a crowdfunding campaign goes to the online platform hosting the campaign's processing service, known as credit processing fees.

These fees cover data transmissions, transaction authorizations, and funding deposits. Look for a crowdfunding site that offers donors the choice to cover processing fees.

Additionally, most crowdfunding platforms make their revenue by deducting a percentage fee from the total amount raised, known as percentage platform fees. This fee can vary from platform to platform, so consider how these fees could impact your fundraising goal.

Here's a breakdown of the types of fees you might encounter:

When choosing a crowdfunding platform, ease of use should be a top priority. A good platform should keep things simple, so you can focus on raising money.

A simple platform means you spend less time building, updating, and optimizing your campaign page. This allows you to focus on what matters most – raising funds for your cause.

Consistent branding is crucial for creating an identity for your organization. Advanced customization options enable you to easily communicate your values and clarify your call to action (CTA).

Some platforms offer more flexibility than others when it comes to customization. For example, Classy from GoFundMe offers a suite of user-friendly tools that allow you to create highly configurable pages that tell your story and show progress toward your goal.

The ease of use and customization options offered by a platform can make a big difference in the success of your campaign.

Having access to reliable resources can make a huge difference in the success of your crowdfunding campaign. Potential fundraising platforms should offer online tutorials, resource guides, or FAQs to help you navigate the process.

Accessible resources can save you time throughout your campaign, so it's essential to look for platforms that provide easy-to-access tools. This could include video tutorials, webinars, or even a community forum where you can connect with other creators.

Attentive customer service is also crucial in case you encounter any issues during your campaign. Contact the customer support team before selecting a fundraising platform to ensure they're helpful and responsive.

Here are some key things to look for in a fundraising platform's customer service:

Crowdfunding has become a popular way for companies and individuals to raise capital, but it's essential to understand the rules and regulations surrounding it. In Australia, the government amended the Corporations Act in 2017 to provide a legislative framework for crowd-sourced funding.

In Nigeria, micro, small, and medium enterprises with a minimum two-year operating track record can raise funds through a Crowdfunding Portal in exchange for shares, debentures, or other investment instruments. The Commission determines the specific investment instruments that can be issued. The Australian Securities & Investments Commission also provides information on crowd-sourced funding.

Crowdfunding sites generate revenue from a percentage of the funds raised, and the SEC regulates equity-based crowdfunding ventures in the United States.

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In Nigeria, crowdfunding is a viable option for micro, small, and medium enterprises with a minimum two-year operating track record.

These businesses are eligible to raise funds through a Crowdfunding Portal in exchange for the issuance of shares, debentures, or such other investment instrument as the Commission may determine from time to time.

The Nigerian Securities And Exchange Commission has established specific rules for crowdfunding, which can be found in the Aelex article "The Nigerian Securities And Exchange Commission Crowdfunding Rules – its Impact on Startups and SMEs".

To be eligible, businesses must be incorporated as companies in Nigeria and have a minimum two-year operating track record.

Here's a summary of the eligibility criteria:

The Nigerian Securities And Exchange Commission has established specific rules for crowdfunding, which can be found in the Aelex article "The Nigerian Securities And Exchange Commission Crowdfunding Rules – its Impact on Startups and SMEs".

Companies conducting crowdfunding offerings under Regulation Crowdfunding are required to disclose a description of their business and anticipated plan of business, including their name, legal status, physical address, and website address.

This information is filed in a document called Form C and uploaded to the SEC's EDGAR system for access by investors and crowdfunding intermediaries.

Companies must also disclose the material factors that make an investment in the company speculative or risky, as well as the company's financial condition.

A discussion of the company's financial condition is a crucial part of the disclosure process.

The company must also disclose the names and positions of the directors and officers, as well as the name of each person who is a beneficial owner of 20% or more of the company's outstanding voting equity securities.

Additional information required includes the business experience of the directors and officers over the past three years.

The price of the securities or the method for determining the price must also be disclosed.

Broker-dealers and funding portals operating Regulation Crowdfunding platforms are required to provide certain investor education materials and information about the offering and company.

They must also obtain confirmation that investors understand the risks involved and can bear the loss of their investment.

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Here's a summary of the required disclosures:

When you back a crowdfunding project, you might wonder if you'll get your money back if the project fails. The answer depends on the type of crowdfunding.

For donation-based crowdfunding, companies don't need to pay back investors. However, some companies offer incentives for early backers like an advance copy of the product.

If you're considering backing a project, it's essential to understand the terms and conditions of the crowdfunding platform. Some platforms may have specific rules about refunds or returns.

Companies that offer rewards or equity in exchange for funding, on the other hand, may have different rules. They might be required to pay back investors or provide a certain level of service in exchange for their investment.

It's crucial to carefully review the project's terms and conditions before making a decision. This will help you understand what you can expect if the project is successful or if it fails.