Over the past ten years, crowdfunding has become an insanely popular way to raise funding for small and medium enterprises. While venture financing continues to be the main form of raising capital, an increasing number of articles from the world of crowdfunding are being published in the media. Because of this, crowdfunding platforms (which offer a chance to implement almost any idea with community support) are becoming common knowledge for an increasing number of people. You only have to think of the Cowboy campaign, which beat its original funding target of 1.3 million euros by raising a staggering 4 million!
Crowdfunding offers a wealth of opportunities for both sponsors and projects, but it’s important to know the lay of the land to achieve success in this field. Even strong theoretical knowledge doesn’t guarantee that you understand the essence of crowdfunding and how to use it to make money. The best way to immerse yourself in the industry is to learn some little-known facts about crowdfunding! Here, we’ve brought together the top 10 facts, just for you.
- Complicated engagement process
Why? Because everything in crowdfunding depends on your marketing efforts and the internal impulses of potential investors. To achieve your financial goal on one of the popular crowdfunding platforms, your project must be accompanied by a convincing backstory. Even better – you should have a brand and an image that will automatically present your idea to the audience long before you start talking about it.
In crowdfunding, project popularity often depends on the popularity of its creators. Your marketing campaign should clearly explain how exactly investments from other people will help your business and the world at large.
- Attractive investment conditions
Crowdfunding is especially attractive for entrepreneurs (especially young ones), because it doesn’t require direct interaction with sponsors and does not include additional limitations in proportion to investments. In venture funding, the founder’s degree of influence directly depends on the investment amount and control is given to the majority. In crowdfunding, you can relax. There’s no need to consider your investors’ opinions, as you offer alternative bonuses for their investment, and not leverage in your company.
- Crowdfunding reflects the goals and values of modern society
Crowdfunding is an excellent option even for large companies that would like to make a positive impact on society. When you need to get attention from the community, crowdfunding offers the fastest solution to this problem. Your community starts to participate in solving environmental problems and influencing technological developments, because people always sponsor the projects that they would like to use in the future. It’s enough to take a look at the projects that raise money on crowdfunding platforms – the ideas that they’d like to implement usually reflect the needs of today’s society. Most projects offer innovations that can improve the quality of life of regular people (for example, high-tech water filters), make a positive impact on the environment (new energy sources), and so on.
- Crowdfunding promotes globalization
While venture funding relies on pitch meetings and live events, crowdfunding always involves digital and online marketing which captures the maximum number of investors. This is achieved through targeting and context ads, pay-per-click advertising, mobile apps, YouTube teasers, and more.
Crowdfunding investors can participate from any point in the world. Startups don’t have to launch in major cities such as New York – they can even start business in a small town, but still reach investors in major cities. There are no geographical restrictions, which offers even more freedom of action and opportunities for attracting capital to projects.
- Attracting investments also offers promotion
During the project funding campaign, you make an immense effort to gain recognition and attract views from a maximum number of people. This is also beneficial to your company’s future products that will be released after the campaign ends. First of all, investors also become potential customers, who have already declared their intentions to purchase your product. Secondly, actively raising funding is linked with the creation of your brand, which will later make it easier to attract your target audience and reach high sales. With the crowdfunding project growing before your eyes, you also achieve product safety: publicly developing and implementing your idea makes customers more likely to trust your project and believe in its legitimacy. Not to mention the security algorithms embedded in contemporary crowdfunding platforms, which return funds to investors if a project is unsuccessful or fraudulent.
- Investments are online purchases
The negotiation process between project founders and crowdfunding investors can be considered a regular online purchase. Crowdfunding platforms are essentially stores: you browse through products (projects), read their descriptions, their advantages and materials, and then you choose the option that most appeals to you. Every investment is a purchase of an implemented idea and various bonuses, with the ultimate bonus in your product’s exposure to the entire world. In the same way, you can search the interview for ‘reviews’ of various projects from other investors who have already invested their funds.
- Crowdfunding brings more diversity to business
Crowdfunding opens new opportunities for people from all walks of life, including people with disabilities, members of marginalized communities, and women in countries where they are not encouraged to participate in business (for example, in Muslim countries). According to a report from the Center for Venture Research, in 2015 only 16% of all startups were led by women, while 38% of crowdfunded initiatives have female founders. For instance, on Indiegogo alone, approximately 42% of all successful campaigns were organized by women.
- Availability of niche crowdfunding platforms
Most people have heard about Kickstarter and Indiegogo, which are universal platforms for all kinds of projects. These are the platforms that most associate with the word ‘crowdfunding’, but there are many others in the world. There are some niche platforms geared towards launching specific types of projects and products. For example, the Mosaic platform welcomes ideas dedicated to renewable energy, while Watsi is devoted to medical services and developments in healthcare. This platform is also used for raising funds for people in need of urgent medical care. Patreon is geared towards artists and creatives (designers, illustrators, musicians, and even media representatives). The AngelList platform is specialized in tech startups around the world, while Quirky is focused on various inventions that are implemented by the platform’s partners (such as GE).
- Unreal growth rates
The crowdfunding market is expected to grow by an average of 16% per year for the next five years (from 2020 to 2025). According to a Fundly report, over 6.5 million crowdfunding campaigns were implemented in 2019. The Kickstarter crowdfunding platform has raised over $1 million, with successful projects mostly in the gaming (37%) and tech (30%) industries. As a result, even Facebook has launched its own Facebook Fundraiser platform, where people can raise money for charity to help others during the pandemic.
- Your favourite hobbies are also a result of crowdfunding
For example, a virtual reality helmet that enables complete immersion into your video games and is even used in education for developing skills that require specific conditions (for pilots and chemists, for example). The first project to successfully realize VR technology and integrate it into everyday life was the Oculus Rift headset. The idea was developed by Palmer Luckey, who designed his first VR headset when he was only 16 years old, but didn’t have enough financing at the time. To raise investments, the project turned to the Kickstarter crowdfunding platform, with the goal of raising $250 000 for the first stage. That’s how Oculus was accidentally discovered by billionaire and IT investor Mark Zuckerberg, who purchased the Oculus company for $2 billion.