If you’re a developer, you know how hard funding and traction are to come by. Most software startups try crowdfunding and fail — they’re doing it wrong! To crowdfund your app, and supercharge your business, let’s look at what works, what doesn’t, and get started right! It’s no secret that the crowdfunding industry is booming. It seems like every day you hear about an exciting new startup crushing their campaign goals and launching their company via Kickstarter or Indiegogo.
Despite the rapid growth of crowdfunding platforms and campaign successes, crowdfunding is still a foreign concept to most. As such, let’s briefly explain the mechanics and guidelines for a more solid foundation before exploring launching a software startup with crowdfunding.
What Is Crowdfunding?
In its simplest form, crowdfunding is getting others to finance the creation of a product, project, business or work of art. It’s extremely advantageous for entrepreneurs and eliminates the overbearing upfront costs that stop most startups before they begin.
Why has crowdfunding been so successful ?
With the advance and expansion of e-commerce, individuals are shopping locally less, now being able to buy anything with the click of a button. This has democratized the consumer–business relationship because customers have a far greater choice. With the power to choose, consumers are opting more for small startups and more personal connections. Hence the explosion of crowdfunding. Furthermore, backers prefer to be early adopters, people who get the product first and are actively part of the startup’s success. In addition, entrepreneurs who were once unable or unwilling to pursue financing can now cut the risk and crowdfund instead.
Crowdfunding seems the perfect platform to launch an app or software product. Unfortunately, non-tangible products are poorly received. This stems from the origins of crowdfunding, because crowdfunding was originally conceived as helping creative people create that which could never exist without funding. Crowdfunding your next business venture can be a fast and relatively easy way to raise money. However, you should know which type of crowdfunding is best for your business and what it requires. Here are the most common types of business crowdfunding:
- Equity crowdfunding: The most traditional type of funding in this list is equity crowdfunding. You sell a piece of your business to an investor or groups of investors and they provide you with the funding (capital) to move your business forward.
- Donation crowdfunding: If you're a nonprofit or local business, donation-based funding might work for you. It simply requires you to create a campaign asking for donations for your business. The money is donated, and there is nothing to repay.
- Debt crowdfunding: Also called "marketplace" funding, debt crowdfunding is when business owners borrow money from other individuals, instead of from a bank. You borrow at a set annual percentage rate, and loans are often structured similar to those of a traditional business loan.
- Rewards crowdfunding: This is likely the most well-known type of crowdfunding. Made popular by sites like Kickstarter, funders are offered products, services, or other gifts in exchange for a set donation amount. For example, if I'm trying to fund my dog walking business, I might offer one hour of puppy snuggles to anyone who donates $50. For those donating $100, I might offer one hour of puppy snuggles plus a free grooming session.
The 7 Best Crowdfunding Sites to Launch Your Business or Product
Indiegogo offers both live crowdfunding campaigns and a marketplace for innovative products. It’s helped entrepreneurs raise over 1 billion dollars for more than 650,000 projects. Acquire starter capital and find out quickly whether your idea has legs with Indiegogo’s “global network of early adopters.”
And with this platform, you don’t have to stop raising money at a specific time. There are no fundraising targets or deadlines. Plus, you can apply equity, offer securities, revenue sharing, and even cryptocurrency sales.
Indiegogo charges a 5% platform fee for all projects. If you’re raising money for a cause, you won’t pay a dime on Indiegogo’s sister platform, GoFundMe.
Kickstarter helps artists, musicians, filmmakers, designers, and other creators connect with the resources to bring their ideas to life. Since their launch in 2009, the company has helped 15 million people pledge $3.7 billion to successfully fund more than 143,000 projects. Funding is all or nothing, so you must meet the goal you set within the allotted time or everyone gets their money back.
It’s free to create a project on Kickstarter, but if it’s successfully funded, Kickstarter applies a 5% fee to collected funds. There will also be processing fees between 3-5%.
Experiment is a platform funding scientific discovery. From dinosaur fossil excavation to the historical study of medieval monasteries -- Experiment backers will fund it if it “pushes the boundaries of knowledge.” They fund project scientists themselves, so there’s no overhead like the 50-60% that comes with a university grant.
It’s free to start a project, but once you receive full funding, Experiment charges an 8% platform fee plus payment processing fees between 3-5%.
LendingClub provides personal loans up to $40,000 and business loans up to $300,000. LendingClub is not a bank. They connect borrowers with investors. In exchange for solid returns, investors purchase Notes that correspond to fractions of loans. LendingClub screens borrowers and facilitates all transactions.
For business loans, get all your capital up front, one-to-five year terms, no monthly payments, and no prepayment penalties. They recommend their loan program for large, one-time expenses. LendingClub also requires you be in business for 12 months or more, have at least 50,000 in annual sales, no recent bankruptcies or tax liens, and ownership of at least 20% of the business.
Expect an origination fee of between 1.99 and 8.99%, and total monthly payments per $10,000 borrowed of between $227 and $955 with total annualized rates of between 9.77% and 35.71%.
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Crowdfunder is a community of 200,000 entrepreneurs and investors offering equity crowdfunding -- which allows entrepreneurs to sell shares in their company to accredited investors. Their network of 12,000 VCs and angel investors has helped startups of all kinds raise money (Over $150 million) from Pre-Seed to Series A.
Crowdfunder offers Free, Starter ($299/month), and Premium ($499/month) plans - each with a variety of services, from document storage to personalized support.
Patreon allows artists, musicians, writers, and more get paid by running a membership business for their fans. Providing a meaningful revenue stream, fans pay you a subscription amount of their choosing in exchange for exclusive experiences and behind-the-scenes content. Over $350 million has been paid to creators, and the average patron pays a monthly fee that’s more than most consumers pay for Netflix or Spotify.
Patreon takes 5% of successfully processed payments. There’s also a payment processing fee each time a payment is processed (usually batched at the beginning of each month). You can also expect payout fees charged for moving funds from your creator balance to your bank or PayPal account.
“Raise money for anything,” no raise requirements or startup fees involved. That’s what it says on the Fundly homepage. They fund everything from personal health needs to politics and even trips. Create a page, manage your campaign from the Fundly app, and use Fundly’s Facebook OpenGraph integration to maximize your reach. There’s no minimum amount to raise to keep your funds, payments can be withdrawn within 48 hours of the donation, and automatic transfers can be arranged.
Everyone pays a platform fee of 4.9% plus a credit card processing fee of 2.9% and $.30 per transaction (depending on your country).
The rapid growth and success of crowdfunding is only going to continue. Up to this point most software startups have failed to take advantage of this growing movement. So, try out these services and find out which one works the best for you. Please let us know your views in the comments section.