When most people think of crowdfunding, they think of sites like Kickstarter and GoFundMe. These two sites represent two different types of crowdfunding: reward and donation, respectively. However, there are two other popular types of crowdfunding being used right now and understanding the differences between them will help you determine which platform is best for your business.
There are four main types of crowdfunding:
- Reward crowdfunding is what sites like Indiegogo and Kickstarter offer. The supporters of a project on those sites receive some sort of reward based on the amount they give. Common incentives include early access to the project, behind the scene videos, swag and recognition.
- Equity crowdfunding allows investors to fund startups and small businesses in exchange for ownership of the company. This method is highly regulated and must be registered through the Securities and Exchange Commission (SEC).
- Debt or microlending crowdfunding includes different types of borrowing, such as mini-bonds, peer-to-peer lending and invoice financing. This method of raising funds requires them to be repaid at a later date. Lending Club is one of the most popular examples of a peer-to-peer lending company.
- Donation-based crowdfunding is similar to the rewards system, though those raising money have no obligation to give any incentive for receiving funds. GoFundMe is one of the most popular donation-based crowdfunding companies.
[Read: 8 Benefits of Equity Crowdfunding]
Choosing the right crowdfunding platform
With so many crowdfunding options available today, it can be tricky to know which is best for your business. Be sure to have a clear understanding of what you’re trying to raise money for and why other people would want to support you. People pledge money because they relate to the mission or the problem your product/service solves, so make sure the benefit to your audience is clear in your messaging.
One thing to keep in mind when choosing a crowdfunding site is partial funding. Some sites will only grant you access to the money contributed if you reach your fundraising goal. If you fail to reach your fundraising goal, yet keep what you’ve collected, it may be harder to cover production costs and follow through on your rewards with less money than anticipated.
Some sites offer assistance with your project in order to ensure its quality and completion. This is determined by your personal preference. If you have a strong team with a clear vision, you won’t need assistance. The benefits of working with the platform is that they’ll guide you through every step of the crowdfunding process and review your project.
With so many crowdfunding options available today, it can be tricky to know which is best for your business.
Pitching your business idea on a crowdfunding platform
Once you’ve selected the right crowdfunding platform for your business, you need to start thinking about your pitch. Whether your pitch is in writing or video, there are many factors to keep in mind.
Below are some tips for getting the most responses from your pitch:
- Get personal. Don’t be afraid to share who you are and what motivated you to start this project. Showing yourself makes you more relatable to outsiders who will feel like they know who you are when giving.
- Share your mission. Tell everyone what this project aims to achieve and how its completion will impact others.
- Offer rewards for supporters. Your audience is more willing to give to a cause if they get something in return. Whether it’s a t-shirt or a personalized video shout out, giving an incentive makes supporters feel like they’re part of the process.
- Be transparent. People are skeptical with their money, especially when they don’t know you. In addition to being personal, let your audience know exactly how you’ll be using their funds and why it is essential to have outside funding for this project.
When you have a solid idea around your pitch, you can start your campaign and spread the word. For inspiration for your crowdfunding campaign, check out our interview with Elan Lee, creator of the card game Exploding Kittens.
[Read: Everything You Need to Know About Crowdfunding]
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