What is Crowdfunding and How Does it Work in 2020?
Have you found yourself wondering what exactly crowdfunding is and how it works?
Most simply, crowdfunding an online form of fundraising where you raise money from a crowd of people to reach a specific monetary goal.
I want to walk you through some of the different types of crowdfunding so that you, the creator of the campaign, can choose the style that best benefits your needs.
In this video, you’ll come away with a better understanding of crowdfunding, and what different strategies you can use to build your campaign.
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Types of Crowdfunding
I want to cover the four main types of crowdfunding, so that when you are ready to launch your campaign, you’ll know exactly what strategy will work best to meet your goals.
- Reward-based Crowdfunding: With this method, individuals can donate to/support a creator in exchange for a claim of rewards/perks, like a pre-order of the product. The two most common sites to build a reward-based campaign are Kickstarter and Indiegogo.
- Nonprofit/Fundraising Crowdfunding: Unlike reward-based crowdfunding, with a nonprofit approach, individuals donate their money for nothing in exchange. This can either be built with a peer to peer approach in which individuals make money on behalf of a cause using their own social media, connections, etc., or by traditional nonprofit crowdfunding, where the organization running the campaign does all the marketing and outreach. This also includes sites like Go Fund Me. If interested in this method, find my book Nonprofit Crowdfunding Explained for more.
- Equity Crowdfunding: Using the Equity approach to crowdfunding, individuals have an opportunity to get shares or equity in a company on the ground floor. This is a good way to gain large amounts of investors, but also gives up ownership of the company. Check out my book, Equity Crowdfunding Explained, for more information.
- Real Estate Crowdfunding: This crowdfunding method targets investors to contribute towards a goal regarding real estate, like purchasing commercial space or residential properties for flipping. I encourage you to see my book, Real Estate Crowdfunding, for further details if you are interested.
Common Crowdfunding Standards
Despite there being many ways to go about crowdfunding, there are certain standards that every campaign should have in common. The best campaigns will have:
- A Fundraising Goal: A specific and measurable amount of money that you are trying to reach with your crowdfunding campaign.
- A Funding Duration: The amount of time your crowdfunding campaign will remain active on the platform you’ve chosen. While these can vary depending on the project, funding durations can help to create a sense of urgency and encourage individuals to donate right away.
- A Pitch Video/Campaign Text: The offering and explanation of what people are getting. This technique helps to tease people about the new product being created and wets their appetite for what’s to come. This standard is crucial, as if individuals do not watch the video or interact with the campaign text, it is highly unlikely that they will donate to your campaign.
- Marketing: You have to get the campaign out there to people. While many crowdfunding sites have marketing systems built in, it’s important to do your own marketing to build a base and get the ball rolling so that others who encounter the campaign will see progress and be more willing to donate.
- You’ll also have to choose between:
- Keep What You Raise: Creator harvests the money raised from campaign whether or not it reaches its goal.
- All or nothing: If you meet your goal, you keep the money; if you don’t reach your goal, it is given back to the supporters.
Which Crowdfunding Strategy Should I Use?
The answer to this question depends on many factors, including your budget, your product, and the types of individuals you want to attract to donate to your campaign.
I’ve dedicated this Youtube Video to give you all the information that you need to go forth and start funding for your dream project!
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