Each year, crowdfunding platforms generate $17.2 billion in investments in North America alone—proof that crowdfunding is a popular and worthwhile business venture. Its popularity lies in its ability to enable entrepreneurs and small businesses to raise money while giving investors a chance to bring projects to life.
Creating a successful crowdfunding site can be an excellent opportunity for emerging entrepreneurs looking to deepen their foothold in the investment sphere. This article explains how to get started with creating a crowdfunding site.
What Is a Crowdfunding Platform?
Simply put, crowdfunding is a way for people to collectively fund projects or ventures that interest them. To do so, an entrepreneur or group will create a page describing their idea, product, or cause, as well as how much money is needed to make it happen. They share this information, along with a deadline and monetary goal, on a crowdfunding website or app that handles the transactions.
Folks browsing these platforms can then choose to financially back the campaigns that appeal to them, usually with small contributions. In return, they often get a related perk, such as an early product sample or their name in the credits.If the monetary goal is reached before time runs out, the platform collects all the pledges and transfers them. If not, no money changes hands.
This grassroots funding method has taken off in recent years, letting regular people support artists, charities, startups, and causes that traditional lenders might ignore. Sites like Kickstarter and Indiegogo host thousands of campaigns raising money for everything from films to new tech gadgets. Of course, there are risks involved, especially if a funded project doesn’t deliver. When done properly, however, crowdfunding lets creators access financing outside the usual channels.
Types of Crowdfunding Platforms
Crowdfunding platforms are not limited to the Kickstarter model. In fact, there are many types of models that should be considered when building a crowdfunding site of your own.
Donation-based platforms allow individuals, nonprofits, and charities to raise funds for causes without providing financial returns. As contributors typically donate to support the campaign’s social impact or help those in need, these platforms empower personal fundraising for medical bills, disaster relief, memorials, education costs, and more.
Companies also use donation-based crowdfunding to raise money for charitable initiatives as part of their corporate social responsibility. While donors do not receive direct returns, platforms often recognize supporters with shout-outs on social media or small symbolic gifts. GoFundMe is currently the largest donation-based platform.
Equity crowdfunding platforms are a newer model that enables startups and small businesses to raise funds by selling equity shares to many small investors. Previously, only accredited investors could gain private company equity; these platforms, however, open early-stage capital raising to the general public.
Because backers receive actual ownership stakes in the ventures they support, if the startups grow and eventually get acquired or go public, these shareholders may see significant returns on their investments. This expands access to capital for young companies while providing individual investors with opportunities to support and potentially profit from compelling new business concepts.
Perhaps the most recognizable model, reward-based crowdfunding involves providing pre-sale access to a product, experience, or other rewards in exchange for financial pledges. This lets creators fund production, launch new innovations, or expand existing offerings. Backers, in turn, receive first access or discounted pricing on exciting products or projects they want to see come to life.
Kickstarter remains the largest global reward-based platform, with over $7 billion pledged to date. Many vertical-specific reward platforms also exist, such as Appbackr for mobile app development.
Also known as peer-to-peer lending, loan-based platforms directly connect borrowers seeking loans with individual lenders willing to provide the capital. This model expands access to lending outside traditional financial institutions, allowing applicants to get loans based on alternative metrics like education or social capital rather than standard credit scores.
With loan-based crowdfunding, lenders earn interest by spreading their capital across many low-risk loans versus risky single investments, making capital more accessible while generating returns previously available only to banks. Prosper and LendingClub are currently two of the largest peer-to-peer lending marketplaces.
Benefits of Creating a Crowdfunding Platform
There are many benefits to creating a crowdfunding platform; here are just a few.
Crowdfunding unleashes new capital formation opportunities by aggregating many small contributions to fund big ideas. Platforms democratize access to fundraising, leveling the playing field for all types of projects, from charities to startups, and expanding funding possibilities beyond traditional capital sources like bank loans or venture capital. As a result, crowdfunding can finance nearly any initiative if it resonates with the right audience.
Building a Community
Platforms allow project creators to actively engage supporters well beyond a transactional exchange. Backers feel invested in helping bring campaigns to life through ongoing communication and updates, while creators build loyal follower bases who passionately spread the word. This sense of community fuels promotion and future success.
Running a crowdfunding campaign instantly aggregates validation or critiques on product and service ideas from real target customers. As creators can adjust concepts and tailor offerings based on backer input before costly mistakes, crowdfunding campaigns can help provide early market testing and demand indicators.
Reaching a Large Audience
Platforms give startups, artists, and charities access to massive built-in audiences to showcase their work. This enables widespread exposure to the appropriate demographics, a feat that has traditionally been expensive and difficult to achieve independently.
Building Brand Awareness
Running a high-profile crowdfunding campaign significantly spreads brand, product, or cause awareness and generates goodwill. For startups, crowdfunding platforms are especially useful, as they provide valuable public visibility early on.
Testing the Market
Crowdfunding offers a means of evaluating the appetite for a new product or service with minimal risk. This means creators can understand demand before overcommitting resources and ultimately avoid potential waste. Campaign success signals a green light to proceed.
How Have Crowdfunding Platforms Changed Investing?
Most crowdfunding platforms, such as Kickstarter, allow users to invest as little as $1. This opens up the industry to anyone who’s interested, allowing individuals and private companies to pool and manage resources without government funds or traditional business loans.
This format has opened new possibilities for small businesses and entrepreneurs. Successfully funded projects have an immediate audience and customer base for future projects, which sets up independent businesses for success.
Popular Crowdfunding Platforms
Since its inception in 2009, over 550,000 projects have been created on Kickstarter—with a success rate of 40%!
Kickstarter provides a venue where businesses can create web pages advertising their projects, and provide regular updates to their investors, called “backers,” via integrated project blogs.
Once a user finds a product they like, they can back the project in return for rewards. The businesses define the backing levels and rewards for their projects. Some businesses offer digital rewards, while others offer physical rewards. Backers also have the option to invest without asking for anything in return.
GoFundMe was founded in 2010. Since then, the platform has raised over $15 billion for humanitarian causes and events. The platform is open to the public for individual fundraising, but it also lets users raise money for their favorite registered charities. Fundraising projects on GoFundMe range from cancer treatments to graduation parties.
Unlike Kickstarter, GoFundMe is a crowdfunding site made specifically for charitable donations. GoFundMe is aimed at goodwill gestures, so users don’t typically receive rewards for backing a GoFundMe page.
Founded in 2007, IndieGoGo is the oldest crowdfunding platform on this list. It targets entrepreneurs, with the average successful project generating over $41,000—the highest of all crowdfunding platforms. This makes it an excellent crowdfunding platform for technical projects and projects requiring extensive resources.
Where Kickstarter offers investors rewards, IndieGoGo has a “perk” system, which is essentially the same. The primary difference between Kickstarter and IndieGoGo is that the latter offers more customization options on its project pages.
Crowdfunding Platform Essential Features
If you’re thinking about starting a crowdfunding platform of your own, there are some vital features and factors that should first be considered in order to ensure its success.
Crowdfunding platforms provide features specific to project creators, enabling efficient management of campaign pages and funds.
Crowdfunding platforms allow individuals and groups to easily create customized campaign pages with a variety of user-friendly project tools, including template options, intuitive page builders, and integration with media storage. As a result, fundraisers can effectively showcase their mission, product details, imagery, and videos to potential backers.
Robust backer management features empower fundraisers to actively engage with and update their supporter community throughout a campaign. Integrated blogging, commenting, and messaging functions facilitate transparent communication about campaign progress to sustain backer enthusiasm and trust.
Secure virtual wallet solutions give fundraisers confidence in safely accumulating and managing campaign contributions in one place. Seamless transfers to external accounts and detailed reporting streamline fiscal administration during and after active fundraising.
Comprehensive real-time reporting provides fundraisers with actionable insights into campaign traction. By tracking key metrics like traffic sources, referral patterns, backer activity, and cash flow, fundraisers can fine-tune their strategy in order to optimize outcomes.
In addition to features for fundraisers, your crowdfunding platform should also offer features aimed at enhancing the experience for those interested in contributing to a campaign.
Intuitive search and discovery tools connect backers with mission-aligned campaigns relevant to their passions and interests. Customizable filters, top highlights, and category-specific browsing allow for an engaging yet targeted fundraising search experience.
After backing a campaign, user accounts give supporters access to ongoing project updates from the fundraiser, fostering community and sustaining engagement. With this feature, backers can easily track real-time progress and participate in the campaign journey.
Integrated payment processing facilitates rapid pledging by backers ready to contribute. Wide-ranging options, such as major credit cards, debit cards, and bank transfers, combined with saved payment methods make transactions seamless.
Crowdfunding platforms should also offer dashboards for backers to discover personalized insights into account activity. Real-time contribution reporting, shows all funds dispensed across various campaigns and causes, helping to promote transparency.
Successful Crowdfunding Campaign Stories
America’s Food Fund
Leonardo DeCaprio led America’s Food Fund, which raised over $45 million and is the largest GoFundMe campaign to date. This success shows the power of crowdfunding platforms and their ability to unite celebrities, corporations, and the general public in support of a common goal.
Surprise! Four Secret Novels
A little ingenuity can go a long way. Instead of publishing his books through the traditional channels, Brandon Sanderson elected to publish four novels throughout 2023, giving Kickstarter backers pledge-based access to different versions. The project smashed its $1 million goal, ending at over $41 million, making it one of the platform’s most-backed projects.
Surprise! Four Secret Novels by Sanderson is an excellent example of crowdfunding’s powerful ability to fund projects even outside the tech sphere.
Flow Hive broke IndieGoGo records when its campaign reached over $2 million despite an initial goal of $70,000. Since then, the company has gone on to win multiple awards and run a successful business in the beekeeping industry.
Flow Hive’s success on IndieGoGo shows crowdfunding’s versatility. Investors and everyday people don’t typically fund niché projects like this, but it happened—thanks to IndieGoGo!
3 Steps to Develop Your Own Crowdfunding Platform
Rolling out your own crowdfunding site is an ambitious task that requires thorough preparation. Here are three key steps to launch your own successful crowdfunding platform.
Define Your Goals
Establishing clear objectives and priorities at the outset provides tremendous strategic value when building a crowdfunding platform. Taking time to research the market landscape yields insights into addressing unmet needs and seized opportunities. Additionally, defining target users and success metrics creates a focused roadmap for technology, design, and feature decisions.
Without clearly articulated goals, misalignment easily ensues across teams, bogging projects down as extraneous features creep in. If benchmarks aren’t in place, it becomes impossible to effectively track progress or value delivered. Carefully planned goals, on the other hand, provide all stakeholders with purpose and direction.
Choosing The Right Business Model
There are four main crowdfunding business models. The one you choose will determine how your platform should function and what features you’ll need to offer.
- With donation-based crowdfunding, users make a good-willed investment in a project, cause, or event without expecting remuneration.
- In reward-based crowdfunding, investors receive a product or gift in return for their investment.
- Debt-based crowdfunding is similar to traditional investments in which investors receive interest on their money in return for loaning the funds.
- As the name suggests, investors in equity-based crowdfunding receive business equity in return for their cash.
Hire an Expert Web Developer
Crowdfunding websites are technically complex, requiring an understanding of robust front- and back-end technologies, such as Vue and Django, as well as third-party API integrations for payment processing. Unless you have expert knowledge of web development, you’ll need to hire a professional web development agency to help you. At Idea Maker, we’re specialists in all of these areas. Not all developers can say the same.
There are many factors to consider when hiring a developer. Here are a few to get you started. (For a more detailed breakdown of hiring a web-development company, check out Idea Maker’s extensive guide.)
Portfolio and Experience
One of the most crucial steps in vetting a development company is examining its portfolio to see which industries they’ve worked with. For example, if they haven’t done any projects in the finance or SaaS industries, they’re unlikely to be the best choice to develop a crowdfunding platform.
However, if their unrelated developments function properly and feature extensive use of complex technologies, it might still be worth inquiring. You can always ask to see more examples of their work to better understand their expertise.
Clearly Defined Development Process
A development process outlines the order in which a website is built, from conceptualization to deployment. It should also indicate where your input will be required, and create transparency between you and the development team.
The best agencies will readily feature a clearly outlined development process on their website. If you don’t see one, contact them and ask for an overview of their development procedure. If they can’t provide one, the company is probably disorganized and not a reliable choice for intricate development projects.
Post-Release Support Options
Once your crowdfunding platform is built, it will need regular maintenance to keep it bug-free and running smoothly. Therefore, it’s important to hire a development agency that offers dependable post-release support. Many companies claim to provide post-release support but fail to deliver when required.
To ascertain whether a development agency provides genuine support, revisit their portfolio. If their previous projects work correctly, they probably have solid maintenance packages. Otherwise, it’s best to steer clear.
How Do Crowdfunding Sites Make Money?
Once your crowdfunding platform is up and running, you’ll need to generate an income to keep it maintained. The most common way to do this is to charge a commission on successfully funded projects. Most major crowdfunding platforms use this method of revenue generation.
For example, Kickstarter allows people to use its service free of charge—they can set up and manage projects without spending a dime. However, if a project meets its funding goal, Kickstarter takes a fee as a percentage of the total earnings. This is an attractive financial model for businesses because it incentivizes Kickstarter to promote all projects.
Risks Involved with Crowdfunding Campaigns
Order Fulfillment and Guarantees
If a project is fully funded and the business fails to deliver the promised rewards to backers, the business could be sued. In this case, your crowdfunding site would likely come into the crosshairs too. Kickstarter attempts to address this issue by placing the following disclaimer on all campaigns: “Rewards aren’t guaranteed, but creators must update backers.”
Data Vulnerability and GDPR
Your crowdfunding website will deal with sensitive financial and personal data, such as addresses and bank account numbers, so you’ll have to establish a procedure for destroying data after six years. This requirement is outlined by the Global Data Protection Regulation (GDPR), an active piece of international legislation in Europe. Even as a US-based company, if your website deals with European data, you must adhere to GDPR guidelines.
Now You’re Ready to Build a Crowdfunding Platform
After reading this guide, you should be ready to build your crowdfunding platform. This article covered the following:
- What is a crowdfunding site?
- How have crowdfunding platforms changed investments?
- Popular crowdfunding platforms
- Key features of crowdfunding websites
- Successful crowdfunding campaign stories
- Where to start when developing your own crowdfunding platform
Crowdfunding Website Development from Idea Maker
If you’re looking to build a crowdfunding platform but lack the required technical expertise, consider hiring Idea Maker. Our team of dedicated professionals is ready to build an exceptional crowdfunding site to your specifications. Schedule a free consultation today to learn more!