Starting a Business? Crowdfunding 101 - Understanding the Basics

Crowdfunding has become a popular method for raising money. The basic premise is to raise funds by appealing to the masses. A large number of people each give a small amount of money to reach a goal. 

Typically, an individual, business, or organization creates a campaign to convince people their project is worthy. People then decide if they want to contribute. Often, a small gift is given in return for this contribution. It is an excellent method of raising capital when you are starting a business. Here are the basics of crowdfunding.

Why do people contribute?

1. Freedom to choose and support projects that they feel are worthy.
2. There is little risk involved because if the campaign does not reach its goal, the funds are returned to the contributor.
3. There is usually an incentive given, such as a gift. Typically, the larger the contribution, the better the gift.
4. Satisfaction of seeing a new product or project that they want actually reach the market.

Who uses crowdfunding for raising money?

• Startups, new businesses or companies use it to gain startup capital.
• Inventors of new products use funds to get their product on the market.
• Artists use it to get their music, writing, or other art projects to the public.
• Nonprofit organizations use it to raise money for their cause.
• Individuals use it to raise money for personal needs like medical bills or educational purposes.

What is involved in a crowdfunding campaign?
The most successful crowdfunding campaigns tell a story and really speak to who they target. The product or service being funded fulfills a need or solve a problem for people. Campaigns use every possible channel to reach potential contributors.

• Social media
• Videos, often on YouTube
• Blogs
• Websites
• Press releases

The goal is to create interest and excitement about the project by every possible means. The more “hype” that can be created, the more potential for success.
What are some popular crowdfunding platforms?
Most crowdfunding platforms are located online. Our top 5 favorite:

1. Tilt (EDIT: 10/2018, Tilt has gone out of business)
2. MyHub
3. Indiegogo
4. Kickstarter
5. Gofundme

There is no shortage of crowdfunding websites available. These are just a few of the most popular and ones we've used in the past. Each has its own unique advantages and beneficial qualities.

Crowdfunding provides a wonderful opportunity for fundraising. When executed correctly, you can raise enormous amounts of money for your business, organization, or project.

Apply to our startup pre-accelerator to get your idea ready for a crowdfunding campaign!