What Is Crowd Funding

Corwd Funding (or Crowdfunding) is the process of raising money from strangers or fans over the Internet.  People provide funding on a voluntary basis because they believe in your project and want to do their part to help.  Each individual contribute a smart part of the funding you seek.

There are three types of crowd funding models:

(1) Donations: You do not have to repay.  Donors expect nothing in return. 

(2) Lending:  These are loans you have to repay with interest.

(3) Venture Funding:  Investment in exchange for equity, a share of the profits or revenue.

Changes in SEC regulation to allow for equity funding. Under the new Jobs Act of 2012 crowd funding sites that offer equity funding must register with the SEC.)

See an example of a successful crowd funding project (Pebble Watch).

Who Can Use Crowd Funding

Crowd funding can be used by any individual or organization (for-profit or non-profit).  You do not need to be incorporated in order to use crowd funding.

What Can Funding Be Used For

People donate money this way to support causes and projects such as hurricane relief, music production, start a business, develop software applications, political campaigns, etc.

You can use the money for launching a new venture, paying wages, buying supplies, etc.

How Does Crowd Funding Work

.You determine what to offer: rewards or equity.  See below for more information.

You set your goals and deadlines

You pay a fee

You determine how long you want the project to available for the public to make donations.  The maximum time limit is 180 days.

If your funding level is not met donations are returned unless donors agree to approve the funding anyway.  Some sites employ what is called a "Tipping Point".  This is the minimum amount of donations needed to get the project started.  Once this point is reached there is no returning of donations to donors.  Tipping Point normally starts at around 25% of requested funding.

Projects must meet the guidelines of the particular crowd funding site

Projects can be approved and posted within 24 hours

Crowd Funding sites generally do not accept projects involving pornography, violence

You have to make a promotional video with your self in it to be posted to the project site.  Most sites require your appearance in a promotional video.

There is no maximum limit on the amount of money you can raise.  The minimum is usually set at $100.

You can use social media to promote your project and encourage donors to go to your project site and make donations.

Equity &Rewards

Equity:  If you decide to give up equity in return for funding you must determine how much equity or ownership in your business to give up.  If you choose this option investors will want an independent valuation on your company.

Rewards:  If you decide to offer rewards or perks there are several ways you can go about doing it.

- Offer a discounted price for your product or service by.  Donors will be making a pre-order of your product or service at the discounted price.

- Offer a product or service for free in return for the donation.

- Offer a dinner, trip, movie pass, etc. in return for the donation.

What Does It Cost To Use Crowd Funding

Signing up for the service is free

Some sites charge a monthly subscription fee

The average financing fee is 5%.  That is, 5% of the money you raise.

Most crowd funding sites uses a third party payment service to make payment to you.  Keep in mind that you will be charged up to 3% in transaction fees.  Hence your total fee will be the crowd funding site fee plus the 3rd party payment service transaction fee.

Is Crowd Funding Right For Your Business

Crowd Funding may not be right for your business.  To determine if crowd funding is right for your business these are some questions you should answer:

- Mass Appeal: Do you have a great idea that lots of people would be interested in.

- Value:  Will your customers benefit from the product or service. 

- Simplicity:  Can you easily demonstrate to an audience what your project is about.

- Demo:  Can you demonstrate your product or service to an audience so that they can judge for themselves what the potential is. 

- Incentives:  What incentives are you willing to offer to entice others to fund your project.  Is it the kind of incentive that others would less likely to pass up on.

Implementing Crowd Funding

Follow these steps to implement your crowd funding project.

- Type of Funding:  Determine what type of funding you want; donation, loan or equity.

- Funding Level:  Determine how much funding you need.

- Timing:  Determine how quickly you need the funding in order to determine the window for donors to contribute. 

- The Message:  Create a draft message that you will place in your project profile to convince lenders to fund your project.

- Crowd funding Site:  Pick a crowd funding site from the list below.  Create your profile and start raising money.

Below is a list of resources that you can utilize to
access Crowd Funding:

Organization

Type

Description

AppsFunder Donations

If you have an app project this is the place to seek funding.

CrowdFunding Bank Equity

CorwdFunding Bank have a network of funding sources that they reach out to in order to fund your project.

They charge unspecified fees for their service.

GoFundMe   Share your business ideas online at this site and invite others to donate to you.  There are no deadlins or goal requirements.  You get to keep  the money donated to you. 
Indie Gogo Donations

Funds all kinds of projects.  Charges 4% if fully funded and 9% if not fully funded in fees. 

Kickstarter Donation

Since they started in 2009 they've raised over $200,000,000 and funded over 20,000 projects.  List your project and seek funding.  Only allow funding if the exact amount that is being seek is reached.

Microgiving

Donation

Has over 50,000 member community.  Lets you create your own project and seek funding.

 

RocketHub Donations Provides crowd funding for all kinds of projects. 
Seedups Equity

Seedups provides venture crowd funding services.  They link up investors with entrepreneurs. 

StartSomeGood Donations

Their focus is on social engineering projects.  If you have an idea for a social project seek funding here.  Charges a 5% fee of the funding goal.

Startup Addict Donations Funds all kinds of projects. Takes 5% commission.
Ulule Donations

Funds all kinds of projects.  Charges a 5% fee.  90 day maximum campaign window.

WeFunder

Equity

Has over 4,880 funding community.  They do take equity stake in your company.