WHAT ARE CROWDFUNDING OPTIONS AND WHICH ONE IS BEST?
“What’s in it for me?”
The reward promise is the first and most basic differentiator amongst crowdfunding directions. There are 2 vastly different approaches:
Money In, Goods Out: Investors can contribute nominal amounts of money (as low as $1, as high as $10,000+) and, in return, receive “rewards” or thank-you gifts related to the value of their contribution.
Money In, Equity or Money+Interest Out: Investors contribute money (usually in larger amounts but still lower than traditional venture capital: anywhere from $1000-$100,000+) and receive equity shares or interest related to the value of their contribution. This approach enables a project to collectively gain a number of low-risk investors, each receiving lower equity amounts or loan repayments, and enabling the project creator to still maintain majority stakes and decision control. (new – I think – with the passing of the JOBS act??)
For this article – we will focus on the Money In, Goods Out (no equity exchange) approach to crowdfunding.
Whether to Set a Minimum Goal
All or Nothing Model = pledged money from contributors is collected only if an established fundraising goal is met once the campaign is over. This model is appropriate when the project needs a minimum amount of capital in order to continue. For instance, if $10,000 is needed in order to pay a manufacturer for a first production run, then a fundraising goal should be established to meet that need. If only $5000 is raised, it is not helpful because the minimum amount to proceed is not there.
Keep It All Model = pledged money is collected for the project (minus fees of course) regardless of whether a funding goal is met or not. This model is appropriate for projects that can benefit from any amount of capital and do not have a minimum requirement to continue.
Counter to the immediate and obvious reaction that Keep It All Model is best, this is NOT necessarily true. You should be very honest with yourself (and potential contributors) about the real needs of moving a project forward, as well as fulfilling rewards after the campaign is completed.
If you receive $5000 but actually need $10,000 to get started and you keep that money, you will have a lot of contributors with a lot of unmet expectations. This is incredibly detrimental to your reputation as well as the ultimate success of your project. You will chase away future investors for this project and others. On the other hand, if you go for “All or Nothing” and fail to meet the goal, you get no money BUT you still have gained some loyal fans, learned a lot about your project, and have the opportunity to try again after refining your project and/or campaign.
Funding Platform Niches
Within the Money In, Goods Out approach to crowdfunding, there are LOTS of internet based platforms you could use to introduce your campaign. Some offer the All or Nothing Model, some the Keep It All model and some offer both models. Some platforms are open to any kind of project and some are very niche-specific. Some are for-profit and some are open only to non-profits and cause-based efforts.
Here are the primary categories that separate different funding platforms. This categorization will help you determine which platform type might be best for your project:
• Funding Model: All or Nothing / Keep It All / combo
• Project Focus Area: Everybody / Music / Art / Non-profit/etc etc – seriously there are endless niche platforms – everything from Product to Politics to Porn!
• Company-for-profit / Charity or Non-profit / Personal
• Fees: it is important to understand the fee structure of any funding platform and to keep that structure in mind when determining funding goals
• Audience Size: Each platform has its ow audience, some are much larger than others. Size of the audience is relative though. If your project is very unique with a defined group of potentially interested people, go for the platform that reaches that specific audience rather than the one that has a giant but generic population.
• Successful Funding Goal Sizes and Types
The Most Popular Funding Platforms
- Kickstarter: began in 2009. Offers rewards to contributors. Rewards are often the product itself at a promotional rate before anyone else can get it. Projects require deliverables and need to meet a minimum financial goal (set by the project creator) before receiving funding. Kickstarter is very well known in the investor world and is often watched by the market to determine the next big thing.
- Indiegogo: much more open to a variety of projects with less restrictions for rewards or goals than Kickstarter (and thus less market-defined). Creators have an option to set a financial goal or just get whatever funding is contributed. This flexible funding model is good for projects that can benefit from any money received.
- GoFundMe: for personal causes – this could be for anything from a wedding to a vacation to medical expenses to student loan to launching a new business. Campaigns must set a minimum goal and that goal must be met to receive the money.
- Other Platforms to consider: RocketHub, Patreon, GoGetFunding, Causes
There are lots of considerations for choosing the right funding platform. Ultimately, you want to choose one that supports your business need in a way that you can meet expectations of contributors. You also want to choose the platform that reaches the right target audience…the group of people who will be really excited to help fund your project AND to promote it by passing information to their community.