A Comparative Guide to Crowdfunding Platforms

If you wish to start a venture but lack funds, there are four core sources you could turn to:

  • A small business loan
  • VCs/angel investors
  • Friends & family
  • Crowdfunding

Getting a small business loan for a new business may be unwise due to the volatility of your new venture. VCs and angel investors can be highly tailored to the new business scene, but are largely relegated to a few geographic regions, are only effective for a few types of products/services, deal in large amounts of money (generally the minimum is around $500,000), and often overbearing (once they give you money the own you and can often even fire you from your own company). Friends and family are great source of early funding, but the amount you can raise through your personal network is intrinsically limited. Alternatively, crowdfunding models are great for those companies looking to maintain full ownership, test interest in their products, and in need of $3,000- $1,000,000 in funding (above that point, one might be best off working with VCs).

Crowdfunding is likely right for you if:

  • You want to boost demand before you begin building your product
  • Your work has widespread appeal
  • You have  a robust and engaged fan base or social network
  • You are good at bringing a strong message across
  • You are able to package your project in an alluring, visually-appealing manner
  • You are willing to heavily promote your work

Crowdfunding: Equity Vs. Donations

Crowdfunding can be divided into two categories: donation-based platforms and equity based crowdfunding.

Donation-Based Crowdfunding

In donation-based crowdfunding, a company promises a product in return for a donation even though the product doesn’t yet exist. This model was popularized by Kickstarter and Indiegogo.

Equity-Based Crowdfunding

Equity-based crowdfunding was difficult in the US before the enactment of the JOBS act title II 9/13/2012. Now, an accredited individual (or non-accredited if Title III of the JOBS act passes) may invest a small amount in a company and receive a portion of said company in the form of equity. The loudest players on the crowedfunding scene are Crowdfunder.com, CircleUp, and AngelList.

Equity-based funding is currently an untested field, so it is difficult to confidently advise that route. In other countries where it has been legal, such as Germany, companies utilizing equity-based crowdfunding have ran into problems. Smarchive, which raised money through the German crowdfunding platform Seedmatch claims that the crowdfunding money almost bankrupt their company. Specifically, there were contractual conflicts due to anti-dilution clauses and the fact that the micro-investors weren’t pooled. While such legal mismatches will likely be sorted out over time, it could take a few years before equity-based crowdfunding can be confidently recommended as a safe means of money.

Crowdfunding: Players in the Donations Model

The donation model of crowdfunding has been heavily tested for around half a decade.

The largest players in the scene are:

Kickstarter

  • The largest crowdfunding platform
  • Has a strong focus on creative projects
  • Imposes heavy restrictions
  • Functions across the US, UK, and Canada for donations and fundraising
  • Projects can only receive funding only if they raise the minimum amount they pledged to reach
  • Requires campaigns offer perks in return for donations
  • Charges a 5% commission fee (there is no fee if you don’t meet your goal)
  • Average campaign request: $5,000, Percentage failed: 56%

Indiegogo

  • The second largest crowdfunding platform
  • Has loose restrictions on what can receive funding (can include things like a trip)
  • Participants can raise less than full funding and keep money
  • Does not require campaigns to offer perks in return for funding
  • Charges a 4% commission fee (9% if you don’t reach your goal but still withdraw money)
  • Average campaign request: $3,700, Percentage failed: 80%

The other significant players include:

RocketHub

  • Has loose restrictions on what can receive funding
  • Offers more help to fundraising teams than other companies
  • Fundraisers can raise less than full funding and keep money
  • Charges a 4% commission fee (8% if you don’t reach your goal but still withdraw money)

Crowdrise

  • Is restricted to charities
  • Offers special features for tracking how impact organisations are having
  • Charges a 5% commission fee that can be lowered to 3% with monthly payments of up to $199 (and an annual commitment)

Appbackr

  • Focuses on mobile app development
  • Commission fees vary

Quirky

  • Focuses on community participation in invention
  • Provides a location to sell final products
  • Project creation commissions vary depending on the nature of collaboration

Weeve

  • Is restricted to nonprofits
  • Offers a freemium payment model with 0% commissions

Petridish.org

  • Focuses on funding for scientific research
  • Specifically focuses on biological research

Offbeatr

  • Focuses on pornography
  • Charges a 30% commission fee and a $10-$100 posting fee

Crowdtilt

  • Has no restrictions
  • Charges a 2.5% commission fee and a 2.5% processing fee (most other companies charge around 5%)

Mobcaster

  • Focuses on TV Shows
  • Charges a 5% commission fee