Looking for ways to fund your small business idea in the new year? Here are 7 crowdfunding options to consider in 2023.
A loan is probably your go-to small business funding option.
But why seek a loan when you can crowdfund? This funding source lets you raise equity-free small capital from many people willing to support your business idea.
Studies show that about 40 percent of crowdfunding investment is focused on business and entrepreneurship, while half of that goes to social causes. Also, research by Crowd Data Center found that successful crowdfunded campaigns raise about $33,400 on average.
So, you can expect something out of this funding channel. However, you’ll need the right crowdfunding platform to reach these investors, and that’s what this article is all about.
But first, let’s explore the four types of crowdfunding.
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4 Types of Crowdfunding
Here are the crowdfunding types you might want to explore.
1. Equity Crowdfunding
With this type of crowdfunding, businesses sell part of their company’s shares to willing buyers who will subsequently benefit from the returns as the firm kicks off.
All businesses can explore this crowdfunding option. However, small firms sometimes struggle because of the high minimum investment amount.
2. Donation-based Crowdfunding
Donation-based crowdfunding is suitable for non-profit organizations since they aim to raise money for several causes.
Also, the non-profit isn’t giving the donors a portion of its share or proceeds since it’s charitable giving.
Most established non-profits organize these crowdfunding campaigns via their websites; however, smaller charities without many followers can use these crowdfunding platforms to reach even more people.
3. Reward-Based Crowdfunding
This type of crowdfunding entails obtaining a public loan and repaying it in kind.
With this type of crowdfunding, investors receive non-financial benefits in exchange for investing in the company.
The incentive might be in the form of free services, discounted services, early access to finished items, free services, community service, honoring investors, thank-you notes, and more.
Businesses benefit a lot from choosing this method. Firstly, it is less expensive for firms to raise funding because of the no-interest feature.
Also, the business owner has complete control over his enterprise.
Although, Investors might not come forward, though, as the ROI does not include financial benefits. This implies that businesses looking for a significant sum of money would have trouble using this strategy.
4. Peer-to-peer lending
Peer-to-peer lending involves a fund seeker amassing money from a group with promises to pay it back with interest.
With this form of crowdfunding, businesses can borrow directly from lenders without involving a bank. However, P2P loans attract higher interest rates than traditional ones.
This type of crowdfunding is more akin to taking out a loan from a regular bank, but it involves more investors, and the money-sourcing often happens online.
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7 Best Crowdfunding Sites for Your Small Business
Use these seven crowdfunding platforms to raise funds for your small business in 2023.
To many, Kickstarter is the best crowdfunding website for businesses, organizations, and individuals looking to raise money via campaigns. This is probably due to the platform’s record of aiding several successful fund-raising attempts.
The website’s user-friendliness is one of the reasons people prefer the platform. With Kickstarter, you can outline your campaign’s narrative and set a financial target and a timeframe for achieving it. It also lets you share your initiative with the neighborhood to get sponsors.
Pebble Technology, a smartwatch manufacturer that Fitbit purchased in 2016, is an example of a company that used Kickstarter.
Pebble Technology was about to launch one of its smartwatches, the Pebble, but needed money for it. So, the firm started a fundraising campaign on Kickstarter, which turned out to be the most funded project on the platform then.
The campaign ran from April 11, 2012, to May 18, that same year, and resulted in 10.3 million dollars.
Eventually, Pebble ended the product, but Fitbit saw the firm’s potential and acquired it.
Kickstarter has accommodated over 220,000 projects created by artists, musicians, etcetera. While creating a campaign on the platform is free, users must pay 5 percent of the amount raised.
Kickstarter also charges a processing fee, which is usually between 3 and 5 percent.
Indiegogo has cemented its place as one of the leading crowdfunding platforms. The website has handled over 800,000 campaigns and has raised more than 1 billion dollars for fund seekers.
With Indiegogo, you don’t need to stop your fundraising campaign at some point; you can keep it going as long as you want. There are no set goals or timelines for raising money, and you can use shares, securities, revenue-sharing, or even sell cryptocurrencies.
Flow used Indiegogo to fund their new invention, the Flow hive, which could help extract honey from the hive without disturbing bees.
The company’s campaign blew up and generated 250 thousand dollars, compared to the 70 thousand dollars the company initially sought for.
The equity crowdfunding website Crowdcube’s purpose is to attract investors from among your friends, family, followers, and clients.
The platform helps you create achievable goals, a fair value, a compelling pitch, and a well-thought-out communication strategy to engage Crowdcube’s investment community.
You’ll make it public when your pitch meets 20 percent of your target. In addition, when your campaign reaches 75 percent funding, Crowdcube’s legal department will step in to assist you in raising funds quickly.
Through Crowdcube, Mokoko, a company that offers cycling services, was able to raise over 136 thousand pounds with the efforts of 144 investors.
The firm started the campaign, attempting to acquire a financial footing to help scale the Moloko business model.
Fundable is a convenient crowdfunding platform that small businesses use to raise funds through equity and rewards.
Since 2012, firms have generated over 560 million dollars through Fundable.
An example of a company that has used Fundable is vMobo, which builds and offers interactive, text message-based, direct marketing apps.
vMobo started a fundraising campaign to raise five thousand dollars. The company eventually closed the fundraiser after acquiring three thousand dollars.
Using fundable means you don’t have to worry about success fees if you’re fundraising with equity.
However, you must have a monthly subscription of 169 dollars a month before posting a campaign. Also, you pay merchant processing fees for reward fundraising.
WeFunder is a popular crowdfunding platform that allows startups to easily connect with investors.
The platform lets firms raise between 50 thousand dollars and 5 million dollars without encountering high fees.
One of the website’s notable characteristics is that it allows accredited and non-accredited investors.
Nick Tomarello, the CEO of Wefunder, claims the platform has helped numerous companies raise over 5 billion dollars by connecting them with willing investors.
Wefunder doesn’t charge profile management fees; however, they receive 7.5 percent of the funds raised from a successful campaign.
Meow Wolf, an arts production company that focuses on creating multimedia experiences for its audiences, raised 1 million dollars via its Wefunder campaign. Since then, the firm has raised over 200 million dollars in venture capital.
SeedInvest is a crowdfunding platform for start-ups and early-stage companies looking to raise funding through equity-based campaigns and convertible note offerings.
The crowdfunding platform boasts over 690 thousand investors and has helped startups raise over 460 million dollars.
Through SeedInvest, Heliogen, a renewable energy firm, raised 1.6 million dollars in a 2017 campaign that attracted the investment of Bill Gates and Steve Case, among others.
If using SeedInvest, expect a 7.5 percent fee for every successful campaign, up to ten thousand dollars worth of legal and administrative fees, and a 5 percent equity or capital fee.
Fundly is another popular website you can use for any crowdfunding campaign of your choice.
With the crowdfunding platform, you can withdraw within 48 hours and even activate an automatic transfer.
Through Fundly, EPIC, a non-profit organization that assists homeless people, raised $30,291—which is 1.21x their original goal of 25 thousand dollars.
Fundly charges a 4.9 percent transaction fee on donations, a 2.9 percent fee for credit card processing, and up to $0.030 per transaction in Canada and the U.S. The Australian and U.K. rates differ slightly.
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Crowdfunding Options For Your Small Business: What Next?
Only 22.4 percent of crowdfunding campaigns are successful, meaning eight of every ten campaigns are disappointing.
So, you might not want to keep your expectations too high. However, you can improve your odds by selling a solid idea to potential investors. Additionally, check out how successfully crowdfunded businesses set up their campaigns to learn how to crack the nut.
Also, explore these 6 alternative small business financing options to diversify your funding sources in 2023.
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