Crowdfunding has become a phenomenon in the modern era with non-profits, businesses, artists, and even individuals using it to raise funds and resources. Leveraging the power of best-in-class technology, the global reach of the internet, and the undeniable influence of social media, crowdfunding websites bridge the gap between funders/ donors and those in need of funds.
Crowdfunding has proven incredibly effective for those who may not be able to raise funds using traditional fundraising methods such as lenders, sponsors, donors, etc. During the Covid pandemic, we witnessed how people effectively used crowdfunding campaigns to raise funds for everything from medical emergencies, education, and hunger prevention to social innovations, business, research, and much more.
Want to know what exactly is crowdfunding, how does it work, what are its types, and what are its pros and cons? Keep reading to find out as we unpack the basics of crowdfunding.
What is Crowdfunding?
Crowdfunding is a fundraising method that is based on collective giving and action to finance worthy causes/ ideas/ projects. This revolutionary fundraising method enables Individuals and organizations to seek small contributions/ investments/ loans/ donations from a large number of people/ organizations, typically through a crowdfunding website/ platform.
Crowdfunding is so effective because it doesn’t rely on a single large investor/ donor/ lender/ sponsor. It enables multiple backers to come together to fund causes/ projects they align with/ believe in. The financial burden is spread across these multiple backers.
Here is a summary of the process
- Three key components of crowdfunding campaigns are –
- Goals
- Timeline
- Incentives (if any)
The individual/ organization must clearly define these aspects before proceeding further in the process. This is an important step to maximize crowdfunding efforts.
- The individual/organization must choose a crowdfunding website/ platform that aligns with their cause and the nature of their project. For instance, non-profit organizations should choose a donation-based crowdfunding platform to run their campaign while businesses could choose between equity-, debt-, reward-based, or other crowdfunding websites based on their goals and needs. Similarly, individuals should choose a crowdfunding platform that allows individuals to raise funds and resources for their personal needs and emergencies.
- They must register on the chosen crowdfunding platform with their details and submit any documents, if necessary. Top platforms typically verify the organization to create trust among donors/ lenders/ sponsors.
- Registered users create a compelling request giving all necessary details of their project/ cause. A compelling narrative, and engaging visuals, images, and videos will help grab the attention of potential donors/ funders. The platform will verify and approve the crowdfunding campaign request and publish it.
- Depending on the crowdfunding website being used, the fundraiser will have marketing and campaign tools to help them share and promote their request. By promoting the request, the fundraiser gains greater reach. The fundraiser needs to engage with the network in effective ways to ensure greater success.
- Typically, these platforms offer a range of tools to monitor and track requests. Based on the progress of the campaign and feedback received, fundraisers can adjust their strategies to maximize outcomes.
- The donations/ investments received can be withdrawn and used by the fundraiser. If there are commitments such as rewards or interests to be paid, the user must honor them in a timely manner.
Why Crowdfunding?
- The lower costs and barriers to entry in crowdfunding websites democratize access to funds and resources for everyone in need. They are easy, hassle-free, and accessible alternatives to traditional fundraising routes.
- Backed by technology, the internet, and social media, crowdfunding breaks barriers and connects those in need with those willing to give from across the globe. So, individuals, communities, non-profits, and other entities in need can access a global community of backers.
- Anyone willing to give money, resources, or time can participate in crowdfunding since the financial burden is spread out. They can donate/ invest to causes/ projects they feel emotionally connected to in their own capacity.
- The top crowdfunding websites enable backers and donors to find verified causes and projects to give to. By verifying fundraisers and their requests, these platforms create a reliable way to spread kindness and drive positive change.
Types of Crowdfunding
Donation-based: Individuals and organizations donate small amounts towards causes/ initiatives/ projects run by non-profits/ individuals without receiving any material or financial reward in return.
Equity: Individuals/ organizations make small investments in businesses for a small stake in them.
Debt: Individuals/ organizations invest in debt securities such as bonds offered by the company or offer small amounts as loans to the business in return for timely interest payments and principal repayment.
Rewards-based: Individuals/ organizations donating to this type of crowdfunding project will receive a non-financial reward at a later stage.
Profits-/ Revenue-sharing: Individuals/ organizations contributing to these projects will receive a future share in profits/ revenues for their current investments.
Maximizing Crowdfunding Success
Crowdfunding does have its risks and challenges. There are high risks of campaign failure if the fundraiser does not have well-defined goals, strategies, and timelines, does not choose the right platform, or does not run the campaign effectively.
There are also risks of money laundering, data breaches, and other digital frauds involved. This makes the choice of the crowdfunding website even more important. Crowdfunding platforms such as TALGiving make it seamless, secure, and straightforward to not just run campaigns but maximize fundraising efforts.
TALGiving is a donation-based platform that harnesses the power of kindness and collective action to drive lasting social change.
