Month: June 2022
How to Create Your Own Crowdfunding Website
Best examples of crowdfunding platforms
To launch a successful crowdfunding platform, you need to know who your direct competitors are. Let’s take a look at the most successful crowdfunding platforms.
Kickstarter
Kickstarter is the most popular platform on the crowdfunding market. The average success rate for Kickstarter campaigns is 37.92%. This platform helps entrepreneurs raise the funds they need to launch their creative projects across 15 categories. The most popular categories on Kickstarter are film & video (75,140 projects launched), music (82,894 projects launched), and games (54,269 projects launched).
Kickstarter offers an all-or-nothing funding system. A project creator sets a goal and fundraising deadline. As soon as the goal is achieved, pledges are collected from those who promised to support the project. If the project fails to achieve its goal, no funds are collected and the project’s creator does not receive funding.
Indiegogo
Similar to Kickstarter, Indiegogo allows startups, charities, and people with creative ideas to receive financial support to launch their projects. However, unlike Kickstarter, Indiegogo allows for flexible campaigns, so creators can keep as much money as they can raise even if they fail to reach their goal.
Fixed campaigns (equivalent to Kickstarter’s all-or-nothing campaigns) are also available on Indiegogo. The average success rate for all Indiegogo campaigns is 9.8%, and the average success rate for Indiegogo campaigns with fixed funding is 17.1%.
GoFundMe
GoFundMe is a platform that allows charities, companies, and individuals to raise funds for any occasion. Since 2010, the platform has helped users raise $9 billion from over 120 million donations. People often use GoFundMe to raise money for medical treatments, college tuition, and even graduation dresses.
Unlike the platforms mentioned above, there are no deadlines for achieving GoFundMe campaign goals. Moreover, a campaign does not stop when the goal is achieved. Thus, campaign creators can get more money than planned.
Patreon
Patreon is a platform that allows artists and content creators to get paid for what they create. This platform follows the patronage principle. Patrons (sponsors) pay a monthly fee for early access to an artist’s content, additional artwork, or unspoken additions. Artists, in turn, are regularly paid for their work. Since its launch in 2013, Patreon has helped more than 150,000 artists earn over $1 billion.
Crowdfunder
The Crowdfunder platform allows entrepreneurs to raise funds for their projects in exchange for a stake in their companies. Unlike all other platforms mentioned above, Crowdfunder has a minimum amount of investment, which sometimes may reach tens of thousands of dollars.
Crowdfunder is a network of over 130,000 entrepreneurs and investors that has helped its users close more than 100 deals, worth an average of $1.8 million.
How to Create Your Own Crowdfunding Website
1. Learn how crowdfunding works
Many ideas will remain ideas without the necessary funding. However, attracting investors who will transfer money to a stranger based on a product prototype is not easy. Crowdfunding has opened up great opportunities for startups and innovators to get funding.
Crowdfunding is a way for entrepreneurs to raise capital by requesting small amounts of money from many people rather than large amounts from a few. Usually, crowdfunding campaigns are run through specialized online platforms.
At its core, a crowdfunding platform is a two-way marketplace, with fundraisers or creators on the one hand and donors or sponsors on the other. The platform provides a virtual space for these sides to interact.
Anyone with a business idea, charity, or personal need can start a crowdfunding campaign by posting a project description, business plan, and photos on a crowdfunding platform. Sponsors decide to invest in projects they deem worthy.
2. Decide what type of crowdfunding platform is right for you
The first step for a startup looking to build a crowdfunding site is deciding what type of crowdfunding platform they want. There are four main types:
Donation crowdfunding
Unlike other crowdfunding schemes, crowdfunding based on donations means people donate money to a cause without expecting anything in return. Some donation-based crowdfunding platforms may offer products, perks, or rewards as a thank-you for donations, but there is no real return on investment associated with this type of fundraising.
Reward crowdfunding
Reward crowdfunding is a system in which people invest in projects in order to get compensation or rewards for their support. In reward-based fundraising, a group of people supports a venture proposed by a project creator. Unlike with an equity crowdfunding system, with a reward crowdfunding system, the project owner retains 100% of venture capital funding through crowdfunding on the basis of remuneration.
Equity crowdfunding
Equity crowdfunding is a technique that’s gradually being introduced in the startup industry. It involves a group of investors funding a startup or small business in exchange for equity. It’s like any other type of investment in a company, only it can be done online without much hassle.
If a company makes a profit, the value of its shares rises, helping investors make a profit on their investments. Equity crowdfunding is also commonly known as investment crowdfunding.
Real estate crowdfunding
Since the inception of crowdfunding schemes, there have been many programs that people have joined to help foundations for specific reasons such as donations, equity, rewards, and lending. Recently, however, the real estate industry has also been trying to get help with online crowdfunding. Although the minimum investment is slightly higher than in other spheres, real estate crowdfunding is ideal for those looking to invest money in order to get returns in the long run.
3. Choose the revenue model for your crowdfunding platform
Like many other marketplaces, crowdfunding sites often get paid for their services. But this is not the only way to monetize your crowdfunding site. Before launching a crowdfunding platform, you must decide how it will generate revenue. There are four main ways:
Commission for the amount raised
Most crowdfunding platforms use this method of generating revenue. Fundraisers pay nothing until the desired amount of money is collected. This way, platforms only get paid when a campaign is successful. For example, Kickstarter takes 5% of capital raised for any successful campaign. In the entire history of Kickstarter, only 37% of projects have reached their goal.
From 2009 (when the company was formed) until 2020, Kickstarter projects have raised $5 billion, of which $4.7 billion has come from successful campaigns. For this revenue model to be profitable, a platform must receive a steady stream of new projects and investors.
Paid services and website features
Creators can pay for a platform to help with things like marketing, campaign management, branding, prototyping, and video ads.
Advertisements
You can profit from running ads on your website.
Promoting campaigns
Because fundraising campaigns can last for months, old listings are overlooked in search results and can get lost in the crowd. You can let campaign creators pay for better visibility.
4. Find a crowdfunding niche
Each new crowdfunding platform is dedicated to a specific niche, meaning it runs crowdfunding campaigns for one specific purpose or one category of products.
There’s no point in trying to compete with the largest crowdfunding platforms on the market, because you are likely to lose. The popular crowdfunding sites you see today took years to build and attract a large stream of visitors, campaign creators, and sponsors. To accelerate the success of your own platform, you can choose a niche that has yet to emerge in the crowdfunding industry.
Choosing a niche helps differentiate your site from others and can benefit campaign creators and sponsors. Campaigns may have more success on a platform that attracts supporters of a particular category of products or causes than they would have on a larger, more universal crowdfunding platform. This is a great way to find good patrons.
5. Consider regulatory implications
Like any other business, crowdfunding platforms must comply with certain laws and regulations.
Crowdfunding business owners must plan and implement security measures to keep their platforms secure and comply with know your customer (KYC) and anti-money laundering (AML) laws.
KYC is a set of guidelines business owners must follow to verify the identities of their clients (especially investors and donors) to make sure they are who they say they are. These guidelines are aimed at identifying the client, assessing the risk of money laundering, and determining the legitimacy of the source(s) of a client’s funds. KYC is part of AML procedures and standards.
AML laws, regulations, and procedures are designed to prevent criminals from concealing illicit money. AML regulations require financial institutions to verify the origin of large sums of money and to track and report suspicious activities of their clients.
In addition to complying with the principles mentioned above, you need to ensure the security of sensitive data associated with your customers’ bank accounts and credit cards to prevent third parties from accessing them.
6. Defining features for the first release
To provide a marketplace for your crowdfunding platform, you first need to launch a minimum viable product (MVP). This will allow you to quickly and cost-effectively test your business idea.
An MVP is a version of a product that has enough features to engage users, satisfy them, and get feedback from them. To decide which features to implement in your MVP, you need to define a list of features for your platform, prioritize them, and implement only those that are needed.
A crowdfunding website is a dual marketplace with features for both fundraisers and sponsors. Let’s list the main features that each section should have:
FUNDRAISERS’ SECTION
1. Campaign creation
Fundraisers should be able to easily start a campaign. What information do you need to collect to create a campaign?
- Basic information (project name, description, category, location, images, videos, campaign duration)
- Budget (minimum target)
- Donation reward
- Project history (risks and problems)
- Text about campaign owners
- Payment details or documents for identity verification
To prevent spam and fraud, you must verify the information collected. If it’s not sufficient, you can ask campaign creators to add more information.
Once a campaign is published, you should prevent information from being changed to prevent fraud.
2. Profile management
After successfully registering a campaign, you need to create a fundraiser profile to store all necessary information:
- Basic information
- List of fundraising campaigns
- Payment details
- Messages with sponsors and platform administrators
- Updates that show subscribers and investors that the project is alive and developing
3. Social media sharing
Campaigns must be easy to share. When people share campaigns with their friends, it can lead to further donations. For example:
- 12% of Facebook shares are converted into donations
- 3% of Twitter shares are converted into donations
- 53% of emails are converted into donations
To make things easier for users, add social sharing to each project.
4. Payments
Crowdfunding platforms differ in the funding models available to fundraisers. There are two common types:
-
All-or-nothing funding. This model gives funds only to projects that achieve their financial goals. The platform tracks pledges as opposed to immediately collecting money, and once the funding target is met, money is collected from those who have pledged support.
This method is good for investors who do not want to give money in advance. However, it means that pledged contributions may not be paid in the end. This can be frustrating for a startup when every penny matters. Kickstarter supports this funding model.
- Partial payment model. With this model, money is collected immediately and the project receives funding even if its financial goal is not met. This method is better for fundraisers but not for investors, who risk giving money to failed projects. Indiegogo uses this method.
5. Dashboard
Creators should track the progress of their campaigns to see if they’ve met their goals before the end of the fundraising period. A dashboard is an analytical tool that visualizes statistics and progress, showing the current funding balance, funding sources, reward popularity, and the average amount donated.
These metrics can help fundraisers understand how to motivate people to invest more — whether they need to follow idle audiences, add perks, post updates, hold community meetings, or do something else.
BACKERS’ SECTION
1. Search
Sponsors should be able to quickly and easily find projects that match their interests.
2. Listing details
Search results should display all campaigns that match certain criteria. On campaign pages, investors should be able to get more detailed information about campaigns including project descriptions, information about the owner, the funding amount required, the amount collected to date, the days remaining in the campaign, the number of sponsors, and rewards. Based on this information, investors can decide to support projects.
3. Backer profiles
For some platforms, it’s enough to register via email or a social network to start supporting projects. Users are not required to be accredited equity investors. Anyone 18 or older can buy a share in a company. You should examine the specific laws of each country, however, as they may diff.
Other platforms, especially those with business projects and innovative projects, protect their fundraisers from fraud by requiring sponsor verification in addition to registration. Verification may simply involve linking an account to a LinkedIn profile. Or a platform may require proof of an investor’s identity with a third-party verification service.
For example, Wefunder asks investors to upload documents confirming their accreditation status. This requirement could be fulfilled by submitting a letter from an investor attorney or an official who can vouch for an investor’s status. Or investors may be asked to provide documents proving stable income (tax returns, bank statements, credit reports). These documents are manually checked by Wefunder employees to determine if an investor is accredited.
4. Backing options
When sponsors want to support a project, they can choose from several contribution options. Kickstarter and Indiegogo allow project owners to create package offers. The availability of investment options makes it easy for sponsors to support projects.
5. Payment options
When a sponsor decides to invest in a company or creator, the money collected first goes into escrow in the platform’s bank account for the duration of the campaign. If the goal is achieved, the collector receives money and the investors are considered owners of the acquired securities.
You should integrate your website with the most popular payment gateways that support multiple currencies and payment methods. To allow people to donate from various countries, your payment gateway will also need to convert currencies.
Kickstarter uses Amazon Payments and Stripe, while Indiegogo uses PayPal and Stripe. Other payment gateways include Skrill, MANGOPAY, Adyen, and Braintree. Explore the payment gateways supported in the regions from which you intend to receive payments, as some gateways may not operate in some countries.
6. Dashboard
Investors may support multiple projects. A dashboard helps sponsors keep track of the projects they’re funding and see how campaigns are progressing.
7. Hire an app development team
The next step is to find a development team you want to work with. The first phase of development will include business analysis, developing a technical specification, estimating the development cost, and planning the project. Before diving into the actual development of your crowdfunding website, you and your team should set up an app development workflow, choose the main features for the app, and design an app concept.
Then your development team should create project milestones and start working on the minimum viable product, or MVP.
How much does it cost to build a crowdfunding website?
The cost of developing a crowdfunding website depends on these factors:
- Product features
- Product design
- Hourly rate of your development team
- Project size and complexity
- Technology stack
- Number of team members on the project
- Time frame
The biggest factor that influences a project’s cost is the hourly rate of developers, and that often depends on their location. For example, an application that costs $40,000 to build in the US will cost around $9,000 if developed by engineers in Ukraine.
Developing your project with a company based in Eastern Europe is cost-effective and gives you access to top talent.
Final thoughts
Developing a crowdfunding platform will present you with many challenges, and one of the most difficult is choosing a reliable technology partner.
Even though the market is overflowing with fundraising solutions, there are regions and niches that need attention. Asia, the Middle East, Africa, and South America are unsaturated markets that definitely need crowdfunding.
The competition is fiercer in the US and Europe, but you can still create your own crowdfunding site as long as you provide unique features, satisfy a narrow niche, and provide a great user experience.
If you want to create a crowdfunding website but don’t know where to start, contact Mobindustry for a free consultation.
