Crowdfunding FM&I

Crowdfunding
Crowdfunding is a financing method of raising funds through the support of backers who
typically contribute through an online platform. A crowdfunding campaign usually has
a monetary goal in mind and a deadline set to reach it.
There are three distinct types of crowdfunding that entrepreneurs can use to raise funds
for their business:
• Reward crowdfunding: This type of crowdfunding offers backers of your

campaign rewards, such as exclusive experiences or an early version of your
product or service.
• Debt crowdfunding: This method allows lenders to loan a portion of the funds
and earn interest upon the debt repayment.
• Equity crowdfunding: This method gives supporters investment opportunities
in exchange for equity or potential future return.
Advantages of Crowdfunding
From tapping into a wider investor pool to enjoying more flexible fundraising options,
there are several benefits to crowdfunding over traditional methods. Here are just a few
of the many possible advantages, which we will cover in greater detail later in this guide:
• Reach – By using a crowdfunding platform like Fundable, you have access to

thousands of accredited investors who can see, interact with, and share your
fundraising campaign.
• Presentation – By creating a crowdfunding campaign, you go through the
invaluable process of looking at your business from the top level—its history,
traction, offerings, addressable market, value proposition, and more—and boiling
it down into a polished, easily digestible package.
• PR & Marketing – From launch to close, you can share and promote your
campaign through social media, email newsletters, and other online marketing
tactics. As you and other media outlets cover the progress of you fundraise, you
can double down by steering traffic to your website and other company resources.
• Validation of Concept – Presenting your concept or business to the masses
affords an excellent opportunity to validate and refine your offering. As potential
investors begin to express interest and ask questions, you’ll quickly see if there’s
something missing that would make them more likely to buy in.
• Efficiency – One of the best things about online crowdfunding is its ability to
centralize and streamline your fundraising efforts. By building a single,
comprehensive profile to which you can funnel all your prospects and potential
investors, you eliminate the need to pursue each of them individually. So instead
of duplicating efforts by printing documents, compiling binders, and manually
updating each one when there’s an update, you can present everything online in
a much more accessible format, leaving you with more time to run your business
instead of fundraising.
Disadvantages of Crowdfunding
• Scrutiny and rejection: Just because you have a solid idea doesn’t mean it’s
going to be accepted by your crowdfunding platform of choice. While some
crowdfunding platforms are open and easy-going, some of the more popular
platforms (like Kickstarter) have notoriously detailed rules for what’s allowed
and what’s not. If you don’t meet all their requirements, your campaign might
never be seen.
• Competition: Assuming your campaign is accepted, you’ll face some stiff
competition. Crowdfunding is incredibly popular because of its inherent
advantages, and because it’s so accessible, there are countless projects going on
in any major platform at any given time. Finding a place for yourself requires a
detailed plan of attack, and a clever way to differentiate yourself from your
closest competitors.
• Leaking valuable information: You may also run the risk of leaking valuable
information about your product. For example, showing off a prototype online
(before you file for a copyright or protect your ideas in other ways), can open the
door to copycats. This was the case with Fidget Cube, a novelty item that became
popular after emerging on Kickstarter. Within a few months, manufacturing
companies in China had designed a fleet of similar products, and were selling for
far less than the price of the original Fidget Cube.
• The risk of failure: If you’re turned down by a venture capitalist, you can always
seek out another VC. But if your crowdfunding campaign fails, it can be hard to
recover. A failed crowdfunding campaign is a sign that your business plan isn’t
good enough—at least to the majority of VCs and angel investors. Plus, most
crowdfunding platforms won’t allow you to list the same project twice.
Accordingly, the consequences of failure are severe.
Popular Crowdfunding Websites
Crowdfunding websites such as Kickstarter, Indiegogo, and GoFundMe attract

hundreds of thousands of people hoping to create, or support, the next big thing.
• GoFundMe: As of 2021, GoFundMe is the largest crowdfunding platform.

Since GoFundMe was founded in 2010, the site has raised over $15 billion
through more than 100 million donors. GoFundMe is the site most popular for
individuals seeking to recover from a medical expense or disaster such as a house
fire, natural disaster, or emergency expense. Start-up companies tend to use
Kickstarter.
• Kickstarter: Kickstarter is another popular choice. As of May 29, 2022, since
it was founded in 2009, Kickstarter has successfully funded over 220,000
projects, with more than $6.6 billion pledged across all Kickstarter projects.
Kickstarter is the most popular crowdfunding site for aspiring businesses hoping
to raise capital and reach a larger audience. In fact, unlike GoFundMe,
Kickstarter can only be used for creating projects that can be shared with others.
Additionally, Kickstarter cannot be used to raise funds to donate to a charity or
cause, projects can't offer incentives like equity, revenue sharing, or investment
opportunities, nor can any project involve the site's list of prohibited items such
as "any item claiming to diagnose, cure, treat, or prevent an illness or condition,"
political fundraising, drugs or alcohol, or any contests, coupons, gambling, and
raffles.
• Indiegogo: Indiegogo started as a crowdfunding site initially focused
exclusively on raising money for independent films but began accepting projects
from any category a year after its launch in 2008. Indiegogo is seen as a less
strict and more flexible platform than Kickstarter, as it gives backers control
over whether they want fixed or flexible models—this is probably the most
significant difference between the two crowdfunding platforms. Kickstarter
releases funds only after the campaign has reached its funding goal, whereas
Indiegogo allows the campaigner to receive funding pro-rata, or wait until their
target is hit.
Examples of Crowdfunding
Crowdfunding can be a viable way of raising capital for entrepreneurs at any stage of
their development. Side hustlers, solopreneurs, storefront business owners, and even tech
start-ups have relied on crowdfunding. Here are some notable examples of businesses
that launched as a result of crowdfunding:
• In 2016, smartwatch brand Pebble raised over $20 million in its Kickstarter
campaign. Rival Fitbit quickly acquired Pebble that same year, but the latter’s
ability to launch such a successful campaign is noteworthy.
•
Avid book reader Noelle Santos wanted to open a bookstore and wine bar in the
Bronx. Santos launched a campaign on Indiegogo and raised over $150,000. She
opened her bookstore, dubbed the Lit. Bar, in 2019.
• The makers behind Fidget Cube, a product to help people remain focused while
working, at school, or even at home, raised nearly $6.5 million on Kickstarter.

Crowdfunding FM&I

Uploaded by

Copyright:

Available Formats

Crowdfunding FM&I

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Crowdfunding FM&I

Uploaded by

Copyright:

Available Formats

Crowdfunding

• Reward crowdfunding: This type of crowdfunding offers backers of your

• Reach – By using a crowdfunding platform like Fundable, you have access to

Popular Crowdfunding Websites

Crowdfunding websites such as Kickstarter, Indiegogo, and GoFundMe attract

• GoFundMe: As of 2021, GoFundMe is the largest crowdfunding platform.

You might also like