Business Crowdfunding VS Charitable Crowdfunding
The rise of crowdfunding has been one of the more remarkable stories of the past decade. The leading crowdfunding platforms have sent billions of dollars to projects and causes that otherwise might never have seen the light of day. It is a form of fundraising that best encapsulates the way we live in this young, turbulent century — a cause’s viral potential is perhaps the prime indicator of its likelihood of success.
All this buzz can obscure the fact that the crowdfunding scene is split into two rather distinct camps: crowdfunding for business/artistic projects and crowdfunding for personal/charitable causes. There’s plenty of money flowing into both camps, as seen by the fact that Kickstarter (funding for business ventures) and GoFundMe (funding primarily for personal causes) have facilitated the raising of over $3 billion dollars each. However, the techniques and strategies necessary for a successful crowdfunding campaign — indeed, the very websites used in the process — differ wildly depending on the purpose for which the funds will be used.
Let’s examine the differences between what it takes to conduct a successful business crowdfunding campaign and what it takes to do charitable crowdfunding right.
Table of Contents
Methods Of Crowdfunding
Broadly speaking, crowdfunding is now conducted in four different ways:
- Rewards-Based Crowdfunding: Backers put money into a campaign with the understanding that they’ll receive rewards (or “gifts”) or one sort or another. Very lightly regulated. For entrepreneurs/businesses.
- Equity Crowdfunding: Each backer is an investor who funds a venture in exchange for equity — an ownership stake in the company. Made possible in the U.S. by the JOBS Act, signed into law by President Obama in 2012, which legalized the public solicitation of equity to investors. Much more heavily regulated than rewards crowdfunding. For entrepreneurs/businesses.
- Debt Crowdfunding: Also called “crowdlending.” Backers lend money to a campaigner, who must pay back the loan with interest. For entrepreneurs/businesses. Highly regulated.
- Donation-Based Crowdfunding: Donors contribute to a cause without expecting anything in return. Used by charitable campaigns, not so much by business campaigns. Mostly unregulated.
Read this article to get the big picture on the different types of crowdfunding platforms.
Let’s go through some of the more popular crowdfunding sites out there and the methods of crowdfunding they use.
- Kickstarter: Rewards
- Indiegogo: Rewards, Equity, Donation
- GoFundMe: Donation, Rewards
- Patreon: Rewards, Donation
- Fundable: Rewards, Equity
- Razoo: Donation
- Crowdfunder: Equity
- EquityNet: Equity, Debt
- LendingClub: Debt
- Prosper: Debt
- Accion: Debt
- Kiva U.S.: Debt
Now let’s examine which crowdfunding platforms are best for which purposes.
- Kickstarter is solely for business projects, particularly board games, gadgets, and artistic ventures.
- Indiegogo is the rare crowdfunder that is well-suited to both business and charitable crowdfunding. Indiegogo waives its 5% platform fee for charitable campaigns.
- GoFundMe is primarily for charitable campaigns. You could attempt a campaign for a business venture on GoFundMe, but making it gain traction might prove challenging.
- Patreon is a business crowdfunding platform for those who produce creative content continuously (podcasters, bloggers, etc.). Backers contribute on a recurring basis, not just once.
- Fundable is for business fundraising.
- Razoo is primarily for charitable fundraising.
- Crowdfunder and EquityNet are for businesses.
- LendingClub, Prosper, Accion, and Kiva are primarily for entrepreneurs seeking business funding.
I’ll break it down further. If you want to conduct a medical fundraiser for a sibling’s operation, launch a campaign to rebuild a neighbor’s fire-damaged house, or establish a playground for disabled children, GoFundMe is the most prominent place to go. They recently announced that the amount of money raised on their platform had exceeded 4 billion USD. That’s 4 billion dollars put towards worthy causes (and some, um, entertaining causes), raised by fellow humans. While some have reported issues when trying to withdraw the funds raised, GoFundMe is currently the most powerful engine for charitable crowdfunding. Now, you can certainly launch a GoFundMe campaign for a business or an entrepreneurial venture, but unless it has a strong humanitarian component to it (and you have the ability to play up that aspect of the story on social media), it’s not likely to gain traction. Most businesses and entrepreneurs would be better served using a crowdfunding site that emphasizes such ventures.
On the charitable side, Razoo is another crowdfunding site to consider. They don’t have the public profile of GoFundMe, but they have sent a lot of money into good causes. While they offer business crowdfunding as well, I wouldn’t recommend them for this purpose; you cannot offer your donors rewards with Razoo, and I wouldn’t advise using donation crowdfunding to fund a business unless there’s something about it that tugs at the heartstrings.
The only crowdfunding site that truly offers a compelling case to both business and charitable crowdfunding is Indiegogo. They are the only master-of-all-trades in the crowdfunding industry. On the business side, they offer both rewards crowdfunding and (through a partnership with Microventures) equity crowdfunding. Indiegogo’s rewards crowdfunding side is booming, as the tech and arts communities have taken to Indiegogo like no other crowdfunding platform save Kickstarter. You can offer up to 20 levels of perks to your visitors. And now that Indiegogo’s equity crowdfunding platform has gone live, a business could conduct a rewards campaign and, once successful, launch an equity campaign, having proved to investors the viability of the concept with the successful rewards raise.
On the charitable side, Indiegogo, through its Generosity brand, waives its 5% platform fee entirely (payment processing fees remain though), making them an excellent place to conduct a fundraiser to cover a medical emergency or help educate refugees.
Now we come to the pure business crowdfunders, of which Kickstarter is the biggest by a wide margin. Over 3 billion dollars have been raised by Kickstarter projects. With Kickstarter, it’s mandatory to offer rewards, and they must be tangible items of value, like electronic gizmos or digital graphic novels. Kickstarter is pickier than other similar platforms, pre-screening most of the campaigns that apply to fundraise on the site. Approval can take up to three days. Another thing to keep in mind with Kickstarter is that funding is all-or-nothing — either you raise the amount of your goal within the time specified (30-60 days), or you get nothing. With Kickstarter, you either sink or swim.
Patreon is the business crowdfunding platform you want if you’re in the business of creating and monetizing content, whether it be music, illustrations, games, or Youtube videos. With Patreon, instead of one-time fundraisers for specific projects, your “patrons” pay you on a recurring basis — either monthly or “per creation” — for what you do. Patreon is undergoing a surge in popularity, as it is the crowdfunding platform of choice for some of the most popular podcasts and Youtube channels out there.
Fundable is a business crowdfunding platform that does both rewards and equity crowdfunding — as with Indiegogo, you could do a rewards campaign on the site and, subsequently, an equity campaign to build upon what you’ve achieved. Fundable won’t take a 5% cut of what you raise; they instead charge a flat fee of $179/month for use of their services. This is bad if your crowdfunding campaigns fail, but good if you succeed and raise a lot of money, as that $179/month will pale in comparison to a 5% cut of, say, $200K.
Crowdfunder and EquityNet are both equity crowdfunding sites (though EquityNet offers debt crowdfunding as well), meaning you’re offering ownership shares of your company in exchange for financial backing. Both are geared towards companies with exponential growth potential, and both platforms don’t handle money transfers themselves — all investments are made offline between the backer and the entrepreneur.
LendingClub, Prosper, Accion and Kiva U.S. are online lenders engaging in debt crowdfunding, where backers make loans to interested parties in exchange for repayment with interest. Debt crowdfunding has been around the longest of all the crowdfunding varieties. It’s a great alternative to seeking a business loan from a bank, as banks keep their capital on a much tighter leash than do online lenders. Of these lenders, Kiva has the longest and most convoluted application process, but they do offer loans at 0% interest. Not bad if you can get it!
Let’s now go through some quick tips regarding business and then charitable crowdfunding.
Business Crowdfunding Tips
- Know what type of business crowdfunding campaign best suits you: Rewards, Equity or Debt. I wrote an article on the subject, but I’ll give you the tl;dr version here. Rewards crowdfunding is for those with something appealing to offer the public: gadgets, games, movies, dining experiences, etc. Equity crowdfunding is for companies with great growth potential but which may lack a singular product or experience to share. Debt crowdfunding is best for firms with a funding need for a defined purpose and a plan to pay back the loan.
- Give people compelling reasons to back you. With rewards crowdfunding, this means offering your backers great rewards, not just random swag. Try to offer something at a very low level of funding to get the greatest number of people involved as possible. Also, make your rewards relate to you, your passion, and your story. And be sure to promote them to get people excited!
- Get your friends and family to commit to backing you early. Kickstarter looked at their metrics and saw that 78% of the projects that raise over 20% of their goal are ultimately successful. Seeing that a project already has some support is key to attracting further support. Success breeds success. Get as many people as possible to commit to supporting you right out of the gate.
Charitable Crowdfunding Tips
- Show appreciation to your donors. You may not be giving them rewards, but at least send them a thank you! Some sites give you a button to quickly send a note of appreciation to the donor. Whatever you do, definitely do something — you wouldn’t want word getting around that you’re some kind of non-thanking tool.
- Share your campaign on Facebook. And if you’re a Facebook refusenik, get one of your Zuckerhead friends to post it for you. It’s the most effective way to broaden your donor base. Give your putative friends the ability to publicly demonstrate their virtue to each other!
- Get. Early. Backers. I said this in my business tip list, but it’s worth repeating. Getting early support is a big indicator of eventual success. Get the snowball rolling down the hill.
You have to approach business crowdfunding and charitable crowdfunding with entirely different mindsets. With business crowdfunding, people generally expect something in return, so it’s essential to offer a value proposition. Conversely, when you’re crowdfunding to cover the cost of a surgery or a kid’s education, you’re appealing to the reader’s conscience and sense of social solidarity. Thankfully, there are services that specialize in seeing you through these different processes. There are even writers and review sites dedicated to helping you out, it turns out. Read our crowdfunding reviews and articles, and you’ll be the Merchantiest Maverick of them all.