Ukrainian brand Enjoy The Wood has collected $817,000 on the Kickstarter platform. And a Ukrainian vintage camera collected more than $70,000 in the first three days on the site.

What is crowdfunding

This is a way to raise money for any project: startup, event, charity, and so on. People who finance a project in crowdfunding are called donors or backers, and the receiving party is called recipients or founders. The project that raises money is called a startup.

The purpose of crowdfunding is to support a project that needs money for development.

History of crowdfunding

Crowdfunding has been used as a method of raising money for a long time. For example, villagers used to collect money from every house to build churches.

The first example of crowdfunding was raising money for the tour of the rock band Marillion in 1997. Fans of the band organized action throughout the United States without the participation of the band. They raised about $60 thousand. Later, the soloists themselves raised money to promote two albums.

After that, they began to collect donations for the production of films and the development of cinema. Soon there were many platforms that acted as intermediaries between those who collect money and those who give. They did it for a small commission.

The term “crowdfunding” was introduced in 2006 by journalist Jeff Howe. The American described how it works in his article “The Rise of Crowdsourcing.”

How crowdfunding works

Donors can invest in projects for free or expect some benefit. Many investors want to be part of something great or useful. Therefore, they are looking for options for investing in unique projects. Others want to receive dividends. There are those who just want to help.

Therefore, the principle of crowdfunding is simple – we create an idea and tell about it to people who may be interested. They shall want the project to get realized. Most often, crowdfunding platforms are used for these purposes.

Before starting a project on a crowdfunding platform, you need to register a legal entity. You can withdraw the collected money only to the official bank account of the company, minus the commission. Depending on the platform, this amount is 10-15% of all investments.

Types of crowdfunding

In crowdfunding, you can simply donate money or get something in return. Further, it can be divided into types:

• Equity crowdfunding. Companies raise money through the sale of shares in the project.
• Raising debt capital. Donors of the project invest money to receive it later with interest. The structure of such crowdfunding resembles peer-to-peer. It’s also called debt crowdfunding.
• Contributions for a fee. Members receive gifts for their contributions. For example, if there’s a collection for the production of a film, then the investor may be invited to the premiere.

What businesses can raise money

You will be able to raise money only if you are going to open a project or create a product that will be in high demand. For example, you open a chain of coffee shops in a big city. To stir up interest in the idea, you can promise investors, for example, offer them free coffee for a year. This way you will find contributors faster.

Creative projects also work well when the author enthusiastically advertises them.

In Europe and America, they are more willing to give money to start-ups related to medicine, robotics, and biotechnology. In the former CIS countries, most of the money is collected by crowdfunding projects related to movies, music, or books.

For example, in 2020, American science fiction writer Brandon Sanderson decided to republish one of his old books, The Way of Kings, and opened a fundraiser on the Kickstarter platform. Sanderson planned to raise $250,000 in a month. But he raised $3.7 million in less than a day. It took him 11 minutes to make his first million.

There were so many orders that printed copies quickly ran out. Those who invest in the project in this way received books from the additional circulation only in 2021. As of September 27, 2021, this project has raised $6.7 million.

How to organize a fundraiser

Anyone who wants to raise money for their startup can use crowdfunding platforms. Best of all are the ones that have proven themselves well in your country. Here’s how to organize a fundraiser.

Prepare for crowdfunding

Project preparation starts with developing an idea. It’s worth thinking over the concept and calculating how much money is needed to implement it. You need to get your idea across to people.

It’s important to immediately think about what you will give to donors. These can be discounts on services or the product itself.

To get people interested, you have to be original. For example, offer to visit the production if it’s about a product. Run the tour by yourself. You can also donate products that will be released only once, at the start of the project.

Post project

When you know how much money you need and what you can give backers in return, you can start looking for crowdfunding platforms. Some of them work with all projects, others only with some. There are those that take a commission, and there are those where you can withdraw the entire amount. Choose the one that suits your startup.

Once you have found a suitable platform for crowdfunding and prepared a draft project description, you need to register it. You shall fill in all the fields and sign a cooperation agreement with the platform.

It’s important to submit the project in this form:

• Describe the point in the title. Briefly describe the idea and why it’s important to implement it.
• Make a video presentation. It can be a video to show how the project works. It is desirable that the author himself be in it, to simply and enthusiastically talk about his idea and ask for financial support.
• Describe the project. Tell us about the project in detail. State its purpose and mission. Describe what problems your project will solve. Tell us why you invest, how much you need, and where you will spend it.
• Show what you have already done. Let potential investors know how many people are working on the project and what the results you have for now. This is how you show that you can implement the project when you receive the required amount.
• Add photos and graphics. The less text and more videos and pictures will be on the project page, the easier it will be to perceive the information.
• Speak about the reward. Describe who, how, and when will be able to receive the product, service, or gift, if applicable.

Find a sponsor

To find sponsors, you should tell as many people as possible about the project. Irina Solovey, the curator and lead partner of Spilnokosht, advises using the “three circles” strategy:

1. Circle of Trust. These are your friends. They should be contacted for financial support in the first place. To do this, you can make posts on Facebook or Twitter, or write to your acquaintances personally with a request to support your idea, and so on. The circle of trust, as a rule, gives 30% of all donations.
2. Expert Circle. It includes people who may not know you personally, but who understand the field in which you are creating a project. Get to know them at profile events or on social networks. They can also give you money. Only with their help, you can increase the collected amount up to 50%.
3. Circle of Success. This includes people who don’t know you personally and haven’t heard anything about the project. But they like the idea and they want to support you. It’s them who will support the project at around 50–70% of the goal and will help raise the entire amount. Usually, these are friends of your friends and an audience of experts/opinion leaders in social networks. You can also cover the project in the media. Contact journalists or presenters of popular TV channels who could be inspired by your idea and advertise for free.

Best platforms for crowdfunding

Kickstarter

The platform is mainly for musicians, artists, designers, filmmakers, and other creative people who raise money for their projects. Since the launch of the platform in 2009, more than 15 million people have invested about $4 billion on Kickstarter. The Ukrainian company Ugears has raised money on this platform five times.

You can create your offer on the site for free, but Kickstarter takes a commission of 5% of the sum raised.

IndieGoGo

The platform helped startups raise more than $1 billion for more than 650,000 successful projects. On Indiegogo, there are no clear restrictions on the purpose and timing of the collection. The platform takes a 5% commission from each project. This site has a sister site GoFundMe, where they collect money for business ideas. There is no commission there.

Crowd Supply

Here, 70% of projects are related to equipment, technology, and electronics. On average, each project received about $66,000.

The platform takes from 5% to 15% commission. Here you can not only place a project but also get the services of an entire PR team. The size of the commission will depend on what features you’ll take advantage of.

Crowdfunder

There are more than 200 thousand investors and entrepreneurs on the platform. Founders offer ideas for startups, and backers get the exclusive right to buy shares in these companies. Such a community of business angels and entrepreneurs helped startups raise more than $150 million.

Crowdfunder lists startups for free or with additional promotion assistance ($299/month Starter Scheme and $499/month Premium Package). The latter scheme includes not only advertising and account support but also permission to store documents, and so on.

Experiment

This site was created specifically for scientific discoveries (excavations, studies of medieval buildings, research). The platform only funds the work of the scientists involved in the project. You can post a project for free. But when you collect the money, the site will take a fee of 8%.

Conclusion

Even if you don’t have money, you can make your ideas come true. Crowdfunding is only one of the multiple ways to raise funds for a startup is. There are more chances to receive financial support if a project will potentially be useful to a large number of people. In addition to crowdfunding platforms, money can be raised among friends, through social networks, or seek help from experts.