Are you trying to raise funds for a community project? Or, are you looking for a way to fund a new initiative at your nonprofit organization? Either way, crowdfunding is an option to consider. The tactic is an increasingly popular way for individuals, groups, and nonprofits to raise money for a good cause (without the headache of paying back a loan) while bringing awareness to that cause.
Crowdfunding is a way to fundraise through donations from a large group of people. These individual investments help fund personal or community projects, startup businesses, or nonprofits, and contributions are received on platforms such as GoFundMe or Kickstarter. Additionally, crowdfunding campaigns are shared on social media networks, especially those helping to address a specific cause. The concept of crowdfunding goes back as far as the 1700s, but the first successful online crowdfunding campaign was in 1997. By 2009, crowdfunding became a feasible means of attaining funding for projects, campaigns, and entrepreneurs and continues to be a significant source of funding.
There are five forms of crowdfunding:
- Donation-based crowdfunding occurs when individuals donate money to a specific cause or project. Donation-based crowdfunding does not offer any financial or material incentive to donors. It is typically used for community-based projects, charitable causes, disaster relief, or personal expenses.
- Reward-based crowdfunding is a form of funding in which individuals donate to a business and, in return, receive a product or service. This type of crowdfunding is advantageous for startup businesses.
- Equity-based crowdfunding permits donors to invest in a company in exchange for a percentage of ownership in the company. Equity-based investors receive a financial return and a share of profits based on how much money they invested.
- Debt crowdfunding, otherwise known as peer-to-peer lending or crowdlending, allows individuals or businesses to collect donations with the agreement that the funds will be paid back later. This form of crowdfunding is similar to taking out a loan and allows solicitors to raise thousands of dollars instead of giving equity to investors. There is usually a binding agreement for repayment by a specific time.
- Royalty crowdfunding allows investors to receive a small percentage of funding that is collected for the project or business venture.
A few things to consider
While crowdfunding can be a great alternative to traditional fundraising, there are some pros and cons to contemplate when launching a crowdfunding campaign.
Using crowdfunding platforms can be a great way to centralize your communication to all stakeholders involved, giving you one place to communicate updates and information about your campaign. Your campaign can go viral, exposing your cause to others who may be interested in helping. The most successful crowdfunding campaigns can cause a network effect, with invested stakeholders helping to spread the word about your campaign within their network streams. Through this networking effect, your campaign can be exposed to multiple audiences and the momentum will attract more supporters.
A successful crowdfunding campaign can raise a lot of money, with the average amount being around $7,000. While there are no upfront costs to launch a crowdfunding campaign, people, groups, or organizations who meet their crowdfunding goals may have to pay a small percentage of their revenue to the crowdfunding platform. Since there are no upfront costs involved or repayments needed (except with debt crowdfunding), there isn’t a financial risk associated with launching a crowdfunding campaign. However, it does take time and money to promote it. A considerable amount of money may be needed beforehand to create content and market your campaign.
One real setback to consider is that your campaign may not be successful in gaining the amount you need: less than one-third of all crowdfunding campaigns meet their goals. Another risk in launching a crowdfunding campaign is that your idea can be stolen or mimicked. Someone else could even improve upon your original idea and acquire the funding you’re seeking.
Below is a listing of crowdfunding sources that will be updated periodically.
- Ioby - match funding opportunities
- PlumFund - Community Fundraising
- SeedInvest Technology (for startups)
- Lending Club
Are you seeking other funding sources? Read about how you can seek and apply for grants.
As Program Manager of the Idealist Action Incubator, Carol offers guidance and support to our community of action-takers.