As opposed to wooing investors the old-fashioned way, many start-ups and creative endeavors are taking a new route to gaining investment known as crowdfunding. Simply stated, this involves a pool of small investors coming together to support a project. Numerous websites have sprung into action as platforms to bring investors and entrepreneurs together. It is important to note that not all crowdfunding involves equity. Under many platforms investors are seen more as donators and usually receive some sort of non-monetary reward for their pledges, but no ownership of the company is given. Below is a short guide to the major crowdfunding sites, both general and specific.
The first of its kind, Indiegogo was established in 2008 and funds projects of every shape and size. Not only is Indiegogo open to any type of project, but the website also enables global access, social media integration, analytical tracking, and the campaign creation is free. There are charges however, dependent upon campaign type. Flexible funding, in which the entrepreneur keeps all investments regardless if the goal is met, requires a 4% charge if the project is fully funded, and 9% if it is not. Fixed funding is a flat 4% fee, but all the investments are refunded if the project does not reach the financial goal. Certified non-profits can also receive a 25% discount on all fees.
Focused on creative projects such as comics, art, technology, and games, Kickstarter has funded over 43,000 campaigns. Unlike Indiegogo, Kickstarter limits the type of investment seekers who can use their site as listed here, but essentially the campaign needs to be a project (with a clear beginning and end) and fit into one of Kickstarter’s categories. The platform is also an “all or nothing” business, so if the project is not 100% funded, all investments are refunded. Once a project succeeds, Kickstarter will charge a 5% fee of the earnings. Pledges are available from all over the world, however, only residents in the US and UK can currently establish Kickstarter projects.
Peerbackers is a crowdfunding website catering to entrepreneurs and startups and requires only three things from their users: passion, a social network, and a realistic funding goal. The website charges a 5% success fee, but as always, the schematics are slightly different from either Kickstarter or Indiegogo. If the entrepreneur is able to fulfill all of the stated rewards to those who have donated, the project will go through even if the financial objective has not been met. However, if the funds cannot cover these costs, all of the pledges will be refunded.
With a more formal approach to crowdfunding, Fundable offers entrepreneurs the ability to offer either rewards or equity in exchange for fundraising. Under the rewards category, anyone can pledge funds, however, only accredited investors can participate in equity campaigns. This platform is also looking for projects with higher monetary targets, under $50k for reward campaigns and between $50k to $10 million for equity investments. Instead of a success fee, the website charges $99 a month for its services. Equity fundraising campaigns require both an executive summary and fundraising terms, but startups may also include a business plan, a pitch deck (visual representation of executive summary), various financials, and any closing documents.
Juli Tejadilla is a full-time student in the Masters of International Management program. She previously graduated with two Bachelor of Arts in Marketing and Studio Art from Linfield College. While her interest in international business began as an undergraduate student, she has been traveling around the world since she was nine months old. She hopes through the MIM program to learn key insights to conduct business internationally and to establish herself as a global citizen.