Crowdfunding is a popular way to raise money for your business idea, project, or cause. But not all crowdfunding platforms are the same, and each one has its own advantages and disadvantages. In this article, you will learn about the different types of crowdfunding and how to choose the best one for your business.
This is the simplest and most common type of crowdfunding, where you ask people to donate money to support your cause without expecting anything in return. You can use platforms like GoFundMe, Kickstarter, or Indiegogo to create a campaign and share your story with potential donors. Donation-based crowdfunding is ideal for social, charitable, or personal projects that appeal to people's emotions and values. However, it can also be challenging to stand out from the crowd and reach your funding goal, especially if your project is not very unique or urgent.
This is a type of crowdfunding where you offer rewards or incentives to your backers in exchange for their pledges. The rewards can be anything from a thank-you note to a product sample to a personalized experience. You can use platforms like Kickstarter, Indiegogo, or Patreon to set up different reward tiers and attract different levels of support. Reward-based crowdfunding is suitable for creative, innovative, or artistic projects that can showcase your work and generate interest and excitement. However, it can also be costly and time-consuming to produce and deliver the rewards, and you may face legal issues if you fail to fulfill your promises.
This is a type of crowdfunding where you sell a share of your business or project to your investors in return for their funding. You can use platforms like Seedrs, Crowdcube, or Wefunder to pitch your business idea and valuation to potential investors and offer them equity or profit-sharing. Equity-based crowdfunding is a good option for startups or businesses that have high growth potential and need substantial capital. However, it can also be risky and complex, as you have to comply with regulations, give up some control and ownership, and deal with investor expectations and demands.
This is a type of crowdfunding where you borrow money from your lenders and agree to pay them back with interest. You can use platforms like Funding Circle, Lending Club, or Kiva to apply for a loan and set your interest rate and repayment terms. Debt-based crowdfunding is a viable alternative to traditional bank loans or credit cards, as you can access lower interest rates, faster approval, and more flexible conditions. However, it can also be stressful and burdensome, as you have to repay the loan regardless of your business performance and deal with the consequences of defaulting.
The answer depends on several factors, such as your business stage, goal, budget, audience, and risk appetite. You should consider the pros and cons of each type and compare them with your needs and preferences. You should also research the platforms and their fees, features, and requirements before launching your campaign. Ultimately, the best type of crowdfunding for your business is the one that matches your vision, values, and expectations.
Raising capital in a new venture is simply ‘consumption brought forward’. So I always recommend clarifying some key questions prior to raising; what is the problem your solving; how comprehensive is your product/service in solving the identified problem; is it scalable; how easy is it to replicate (by an incumbent) and finally, does your initial market scan identify customers who ‘desperately want to buy it’. If so, venture capital (such as crowd funding) allows you to achieve the build quicker than bootstrapping via customer sales. In my experience, crowd funding is best suited to B-C market solutions, rather than B-B. Good luck!
According to my experience with clients, crowdfunding is 100% about the product. If it’s sellable to a majority of people, then it could work out. It’s either convincing a single person or a group of people. Whatever you chose, will depend on your product.
Crowd funding is good for the right type of product at the right time in its lifecycle. Physical consumer based products are usually best. Digital consumer products sometimes work and niche B2B products or deep tech generally don’t work, there are some exceptions but not many. The time is generally after the R&D has been done, after small market trials have been done and your looking to acquire a strong evangelist and early adopter customer base. You are basically preselling the product in order to get the capital to make and deliver it, Kogan style. The key benefits of doing a crowd funding - proof there is a market - a stepping stone to larger investments - acquisition of key evangelist customers who will promote your product