Crowdfunding, crowdsourcing, and fundraising. What are these tools and how can they benefit your business?

Crowdfunding, crowdsourcing and fundraising are the latest tools for attracting funding both for start-ups and established companies. These tools are so recent that many entrepreneurs don’t know about their existence or how to use them correctly. As a result, they ignore new opportunities, missing out on potential benefits.

In this article, we will use some striking examples to demonstrate how to apply crowdfunding, crowdsourcing and fundraising in business.

The benefits of crowdfunding for businesses

Crowdfunding campaigns are usually hosted online, which makes it possible to attract more donations. The purpose of the campaign can range from raising funding for a startup, supporting people in difficult situations, helping your favorite artists in the implementation of a creative project … The list is endless. Large companies often turn to crowdfunding campaigns as well. Most often, they do this to check how interested customers are in a new product they are hoping to launch.

Example. LEGO organized a crowdfunding campaign for their new FORMA product line to evaluate demand. The crowdfunding campaign was successful: LEGO managed to raise the target funding. But more importantly, the company was able to establish a conversation with its customers, involving them in the creation of a new product.

Crowdfunding fundraising can be especially effective when used by startups that want to attract funding for the release of a new product. Usually, during the campaign, startups offer their product at a discounted price. After the campaign is finished, it is much easier for the company to present a product that has already proven its relevance in the market.

Example. Last year, backers of the Board game «The Suffering Middle Ages» received their rewards. Backers who donated at least $16 received the game as a reward. Today, the game retails for $19 in stores.

Crowdfunding sales can also be used to organize the mass sale of a company’s shares to private investors without going public.

Example. The founders behind the LavkaLavka farm collective sold shares in their company to investors. The price of each share was $20 000.

You can launch your crowdfunding project on a specialized platform. The most popular platforms in the world are Kickstarter and Indiegogo. In Russia, crowdfunding campaigns are usually launched on planeta.ru and BOOMSTARTER.

Crowdsourcing as business charity

Crowdsourcing is the process of finding volunteers to work on a project. It is similar to outsourcing – a process where a company employs third-party specialists to complete its tasks. Companies often outsource to save money, for example, if it’s cheaper for them to contract an accountant for the reporting period than to hire one full-time employee. Crowdsourcing does not involve any kind of payment for work: volunteers agree to assist the project for free.

It is possible to attract highly qualified specialists to a crowdsourcing project, and people who are prepared to spend their time and energy to take part in the project. The most important thing is to make sure that the project is interesting for them or corresponds to their beliefs and values.

Example. Perhaps the most famous crowdsourcing project is Wikipedia, the free encyclopedia. Articles are written for free by scientists, young researchers, and simply people with specific interests. Authors do not receive any money for materials that are published on Wikipedia, but they get a chance to take part in an interesting project.

Crowdsourcing projects can also be organized by commercial organizations. Moreover, companies can make money from these projects. The main thing is to remember that participation in the project should be beneficial for people.

Example. Procter & Gamble posted a description of the company’s problem on a special website. The participant who found a suitable solution to the problem received a reward. Participants who could not find a solution were not paid for their work at all.

For businesses, crowdsourcing can help draw attention to their projects and find an effective solution to an existing problem. You just need to offer the project participants a suitable reward: valuable experience or a cash prize for the winner. However, if the company does not generate creative solutions and cannot offer volunteers anything of value, it will be difficult to organize such a project.

Fundraising – universal opportunities 

Fundraising is the process of collecting donations – finding and attracting funding for a project. The source of financing can be the government, non-state funds, private companies or simply interested parties. This is a very broad concept: fundraising includes donations, grants, and investments.

Example. Stanford University students Sergey Brin and Larry Page were looking for investments for their startup. They turned to their university professor, David Cheriton. Cheriton introduced them to his friend Andy Bechtolsheim, and the men invested $100 thousand each in the project. The investment paid off well as this new company is now known as Google.

In crowdfunding, founders can attract large investments because a large number of people make small donations. Fundraising involves large donations from one or several investors. In most cases, the money received must be returned with interest. Companies may not always be able to do this.

Don’t be afraid to experiment! New tools will help you find funding for the project and volunteers who are ready to help for free. The main thing is to talk about your project so that other people are interested and want to take part in it.

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