Raising capital to finance a startup has been made easy thanks to crowdfunding websites. These are the sites where entrepreneurs can get funds for their startup from common people like you and me.
In simpler words, it is a crowd of people that will fund your personal or business project with their own money. You will all agree with me that new and growing startups require funding.
Gone are those days when bootstrapping, angel funding, venture capital, and equity and debt financing were the only popular way of financing businesses.
Here comes the era of Crowdfunding which is alternately known as crowd financing, equity crowdfunding or hyper funding. It has proven to be a great way of securing funds to finance a startup.
Crowdfunding is the collective cooperation, attention, and trust by people who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.
How Crowdfunding Websites Work
Crowdfunding websites work as the enablers; they enable investors to help entrepreneurs raise the finance they need to grow their businesses. No doubt about it, Crowdfunding websites are the next generation of business investment.
They are a new way to fund startups and business expansion by giving entrepreneurs a platform to connect with people and raise venture capital.
By attracting lots of investors who invest smaller amounts of money into a person, company, product or idea you can bypass the traditional ways of raising venture finance.
The idea is to give entrepreneurs the opportunity to take control of raising funding from their own network of friends, family, customers, and strangers.
Crowdfunding websites also give people the opportunity to become an investor and build their own investment portfolio supporting exciting new startups and businesses. They are authorized and regulated by the Financial Regulators.
Crowdfunding Websites For Securing Funds
Quite a lot of entrepreneurs have successfully raised funds to finance their projects or businesses through Crowdfunding websites. You too can make your dreams come through by embracing the crowdfunding method to raise your project funds, as long as you don’t sell any kind of stock.
You can start a crowdfunding exercise for free as you will only be charged when your project has raised some funds or the full amount. There’s nothing to lose and this is great for publicity too. Below are some of the best crowdfunding websites that could be the key to seeing your dream come to life.
Launched in 2010, GoFundMe is one of the best crowdfunding websites that can help you secure funds for your startup. The website has quickly become the World’s #1 fundraising site for personal causes and life events. Hundreds of thousands of people have raised over $310M from 4M donors for the things that matter to them most.
GoFundMe allows campaign organizers to invite others to take part in their stories. It removes the physical barriers traditionally associated with receiving financial support from the people in our lives. GoFundMe operates on only a 5% fee deducted from each donation received. Processing fee of 2.9% + $0.30 applies.
Kickstarter has been termed as the World’s largest funding platform for creative projects such as film, music, art, theater, games, comics, design, photography, and more. The crowdfunding website is a creative-only platform as it doesn’t accept personal fundraising.
Since it was launched in 2009, the website claims to have been able to raise funding in the region of $1 billion from 6.4 million people for 63,000 creative projects. Thousands of creative projects are raising funds on Kickstarter right now. You too can check it out but you are expected to make a processing fee of between 3-5%.
Indiegogo empowers people around the world to fund what matters to them. As one of the largest global crowdfunding websites, IndieGoGo aims to be a more flexible site that allows people from around the world over long periods of time for basically anything (not just creative works).
At its core, Indiegogo is the equal opportunity platform dedicated to democratizing the way people raise funds for any project – creative, entrepreneurial, or cause-related. The company’s headquarters is located in San Francisco, with offices in Los Angeles and New York.
Founded in 2008, Indiegogo has appeared on major mainstream media such as Bloomberg, Oprah, Today, and the BBC, as well as in the Wall Street Journal, The Guardian, and The New York Times. The fee is usually 9% and 5% is refunded only if the goal is reached. 3% processing fee and $25 fee for international wire is chargeable.
From motor companies to pizza delivery firms, Crowdcube.com provides a variety of firms the opportunity to pitch for funding. Many of these businesses are already successfully operating and are seeking investment to expand their footprint in a particular market.
Investors can view a business plan and a video, which details why the company is seeking funding and the potential rewards on offer. All businesses are vetted by Crowdcube and must present business plans with at least three years of financial projections.
Seedrs.com is another well-known site but has a greater focus on listing entrepreneurial firms that focuses on helping entrepreneurs gain their first seed capital Investors can back a start-up firm by providing seed capital, for as little as £10, in exchange for equity.
The company carries out full due diligence with all of the enterprises that list. But the firm also argues it is best “left to the crowd” to decide if the business is worthy enough to invest in.
A newer entrant to the crowdfunding space is SyndicateRoom.com, whose model differs. Here, small investors are sought to “top up” substantial stakes in a business that has already been bought by established “dragons” or lead investors. The lead investors must contribute at least 25% of a firm’s funding.
Because small businesses need to procure funding from angel investors ahead of being listed on the website, arguably these businesses have a greater chance of reaching their full fundraising targets.
An even newer player is InvestingZone, which launched in May 2013. Like other crowdfunding websites, the firm gives investors access to some potentially great early-stage companies.
The firm only allows people to invest if they understand the risks they are taking on. Those that want to invest must pass a test on the crowdfunding market.