Crowdfunding is the use of a certain amount of capital from a lot of people to finance a new business idea. Just like the name implies, “crowd”, is “funding”. This means that a large number of people come together to put together capital to finance a new business. Crowdfunding brings investors and entrepreneurs together beyond the traditional owners, relatives, and venture capitalists that we have in the norm.
These days a lot of entrepreneurs use the best crowdfunding websites to fund their new businesses. All they have to do is to take their ideas to these sites for interested investors to review. While there is more to this, it is basically an easier way of sourcing funds for your business.
Who are Crowdfunders?
Crowdfunders are the people whose money is being invested in a particular venture or business. They go on a crowdfunding website and choose an idea to invest in. These funders often expect something in return for their services. These could be products, goods, services, or equity. In some cases, they donate these funds without expecting a return. A funder may give as low as $10 to an idea or a cause. It depends.
Crowdfunding Models and How They Work
Crowdfunding could be in different ways. There are different categories of crowdfunding and these crowdfunding websites operate based on one or two of them. Let’s take a look at some of these categories.
Websites like Kickstarter and Indiegogo are famous for championing this type of crowdfunding. With reward-based crowdfunding, people give their money for a particular product, service, or creative project and in return get rewarded. For example, you might contribute to a product and when it is produced, you are given probably a pack of that product. This is how reward-based crowdfunding works. However, they can even be in stages, the more you give, the bigger your reward.
Peer to Peer Lending
This type of crowdfunding enables people to borrow certain amounts of money on their platforms outside of normal channels like banks. There are people who are willing to lend people their money on these platforms.
Real Estate Crowdfunding
Equity crowdfunding gives investors the opportunity to make real investments in private organizations. Though there are limits to how much you can invest since you can only do so based on how much your net worth is, it is still less regulated compared to other methods of equity financing.
This category of crowdfunding is mainly used by nonprofits seeking donations for a cause or the other. An example of a site that runs donation-based crowdfunding is GoFundMe. GoFundMe gives people a free platform to raise funds for different causes. Funders who give through GoFundMe do not usually ask for anything in return, they simply support a cause.
Benefits of Crowdfunding
The following are the benefits of crowdfunding:
- Efficiency: Crowdfunding is more effective and efficient than traditional fundraising. Crowdfunding is more effective when you are raising funds for your business or cause. With the right platform, you can get investors who will invest in your business.
- Brand Growth: Crowdfunding helps you to gain loyal advocates. From crowdfunders you can meet people who will believe in your product or business long enough to not just invest but campaign for its success. They share your vision and they are willing to promote your brand using their connections, social networks, etc.
- Brand Exposure: Crowdfunding gives you great marketing and media exposure. Through crowdfunding, you can get more media coverage and marketing from the press, people, blogs, websites, social networks, etc. This can even get you more investors that you’ve not met before.
Best Crowdfunding Sites to Fund your Business Ideas
Kickstarter is one of the most popular crowdfunding websites as of 2021. It was founded in 2009 and has successfully executed almost 200,000 projects. Kickstarter is a crowdfunding website for aspiring startups to raise capital and reach a larger audience than they currently have. The site can only be used for projects that you can share with others.
NaijaFund is a crowdfunding platform that gives everyone and anyone the opportunity to raise funds through them. They made it so that everybody can contribute one way or the other. The NaijaFund is free but will always remove a 10% fee from each donation that you receive from people.
Fundanenterprise is a donation-based crowdfunding website that was built for funds donation. These are usually in form of grants to support small and medium-sized enterprises, startups and micro-businesses in Nigeria. They also help to change the way people generally support business operations.
Indiegogo is a global crowdfunding platform focused on empowering people all over the world to fund ideas that are important to them. This platform creates an opportunity for aspiring businesses to presell their products and get feedback from people before producing. They also offer live crowdfunding campaigns where entrepreneurs can raise funds for their ideas. Since it started in 2008, Indiegogo has helped raise over 1 billion dollars for over 650,000 projects.
5. Circle Up
CircleUp is one of the best equity crowdfunding platforms you can ever see around. They are focused on helping consumer brands businesses build their business. They also offer services options, which include a platform where you can connect with investors, learn about technology and gain access to credits for startups.
GoFundMe is currently the largest crowdfunding platform that we have. Since its inception in 2010, the site has raised over 10 billion dollars through more than 150 million donations. It is the perfect site for individuals who have experienced illness, house fire, natural disasters or emergencies to raise money for their medical expenses. It’s a non-profit website.
Crowdfunding is the best way for you to get support for your business or donations for your cause. Crowdfunding has helped a lot of people gain loyalties especially when it comes to business and creativity. And this has attracted investors that have invested in startups like this over time.