Crowdfunding Internet Platforms: Expectations, Reality and Tips

Crowdfunding is a relatively new way to raise investment in a business. Entrepreneurs (start-ups) from all over the world, starting new projects, publish requests for raising funds on special Internet sites. Anyone can become an investor and invest any amount in startups.

How does crowdfunding work?

Through crowdfunding, you can raise funds for a wide variety of areas and directions: construction, cargo transportation, music or any other creativity, reaching a new level in an already existing business, etc.

A startupper develops a project and draws up a business plan for it. It indicates potential dividends to investors. For example, it can be a share in a business, a percentage of sales, a mention in the media, on websites, or a subscription to a publication (for example, through crowdfunding, journalist Paul Salopek launched his project The Deep.).

Then the project is placed on the crowdfunding site and fundraising begins. When the required amount is collected, the finances are transferred to the startup. His next task is to implement the project and fulfill obligations to sponsors. You will have to report to investors about your actions.

Effective ways to raise funds on crowdfunding platforms

Digital consultant Sergey Ulyashchenkov (Digital Business Advisor) shared with the readers of the business blog Exiterra the main approaches and strategies for raising funds on crowdfunding sites: “I highly appreciate the possibilities of crowdfunding. In my opinion, this is promising and works very well. Of course, there are certain nuances here, and it is because of them that crowdfunding is sometimes shunned or criticized. However, if you take into account all the aspects and subtleties of crowdfunding, then you can avoid mistakes and successfully implement your projects.

Crowdfunding is suitable for attracting investments when your business plan and startup idea can be told to potential investors, infecting them with the idea of ​​investing money profitably, getting something in return. Therefore, a platform for crowdfunding should be chosen based on your target audience of investors. Your project should be:

• it is the audience of a particular site that is of interest, and it may differ on different crowdfunding Internet resources;
• be easily understandable to a wide audience of people (not be highly specialized), therefore – most projects suitable for crowdfunding should be B2C.

Visual communications and PR are also an important point in organizing fundraising on crowdfunding sites.

The most common mistakes startups make when “selling a product” to potential investors are as follows:

• “poor” presentation;
• terribly designed page on the site;
• Low-quality images, whether they’re photos or infographics.

And this is quite obvious, since all the knowledge about a startup among people who invest on crowdfunding platforms is based on presentation materials. So, if you want to play on this field, you will have to take care of the materials that truly reveal the project. And it doesn’t matter if you do it yourself or hired professionals. It should be attractive, understandable and trustworthy.

Therefore, on crowdfunding platforms, in addition to the above, the following approaches also play a significant role:

• Tell stories. Just like in social networks, people on crowdfunding platforms love stories. Not for all, but for the majority. Therefore, give the opportunity to follow the development, both on the sites themselves and in other sources, for example, in social networks. This will attract more people in the long run and receive a significant amount of funds. Crowdfunding is always a long game;



• Advertising and promotion. The biggest mistake is to consider the crowdfunding platform as a panacea. Even if you “just post” your project on several platforms, the audience will not rush right away. Crowd resources also warn about this. You will have to invest both money and time for promotion and advertising. Both within the tools of the site itself, and traditional advertising campaigns in social networks and other segments of the Internet.

Crowdfunding models

For a number of business projects, crowdfunding is the most profitable way to get money. For example, if it is not possible to take a loan, because banks, for objective reasons, do not finance all projects.

There are three main models based on the type of reward for the investor:

• Reward crowdfunding. The gratitude for the sponsor will be a return service. This can be media coverage, marketing, a present in the form of future products. In this case, a refund is not expected and both parties are initially aware of this;
• Debt crowdfunding. Money is invested solely for a share in future profits. The terms of the transaction are negotiated even before the start of financing, otherwise there is a high probability that there will be a misunderstanding between the parties;
• Equity crowdfunding. The most profitable option for the investor, because he will make a profit all the time the company exists. For an initial cash contribution, the sponsor is invited to receive a share in the business.

Recently, non-standard offers have appeared in the field of crowdfunding, based on the desire to receive a large and quick income. They are usually based on a “new reading” of gambling and online casinos.

“Their manners”

The vast majority of sites operate abroad – this way of getting investments is welcomed there. Crowdfunding in Russia is only gaining momentum.

Some foreign crowdfunding Internet sites have already ceased to exist, others are only gaining momentum. To date, the most popular foreign ones are the following:

• Kickstarter . The project has existed since 2009 and has financed more than 156 thousand projects. If the declared amount is not collected within a certain time, the money is simply returned back to the sponsors. The commission that the resource will receive from each collection is 5% of the funds collected.



• Indiegogo . The resource has existed since 2008 and allows the organizer of the collection to receive any amount allocated by the sponsors. The commission is standard – 5%.
• Patreon . The target audience of the site is musicians and creative personalities. New projects appear every day, but most of them are not adapted to a wide audience and will never go to the masses. The project is suitable for those who really love creativity. Commission — 5%.
• GoFundMe . This is a personal project that helps raise funds for education, volunteering, and sports. Commercial projects are not considered here, however, participants are ready to help everyone in need. The terms of crowdfunding here do not imply any commission.

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• PledgeMusic . The platform assumes assistance exclusively to musicians – to create a new single or organize a tour. Authors who have not yet become popular offer anything instead of a monetary reward, mainly their own disc or autograph. And, most importantly, there are people on this site who really believe in their success.
• Seed&Spark . This site is a real find for film lovers. Sponsors only need to choose a direction – comedies, dramas, documentaries. There are many who want to implement their project. Investors will choose what they think will really make a splash.
• Give . WordPress site owners can collect donations using the built-in plugin. There are not too many people who want to help here, but it is quite realistic to count on a little help.
• Real gamers and developers can also try to implement their project through this resource. An interesting project will definitely be sponsored! However, only for a part of the shares.

Russian experience

The Russian segment of crowdfunding Internet sites is not yet large, but there are still those who want to invest in startups in our country.
Among the Russian crowdfunding sites that have proven themselves and provide really serious assistance, we highlight the following:

• Planeta . This resource is one of the old-timers in the domestic market, it began its activity in 2012. Well-known musical groups were the first to apply for support here – BI-2, Animal Jazz and many others. At the moment, the site has a wide profile, so anyone can ask for financial assistance, regardless of the direction. Fundraising assumes 10% upon receipt of the required amount, 15% – if up to 99% was collected.

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• Boomstarter . This is a titled platform that won an award as the best startup 8 years ago. The commission is 3.5% and is collected only if the amount desired by the customer is collected. In all other cases, Boomstarter does not charge for its services.

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• Kroogi . Creative people post their projects here. Including Boris Grebenshchikov, Evgeny Grishkovets and others. Raising money for business development is more than realistic here. Technical projects are also considered, but there are not so many of them posted here.

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• CrowdRepublic . The project specializes in games (board, computer, role-playing), comics and books. The resource charges 10% for its services and boasts many completed fees. The sponsors are mostly true fans of the gaming theme.

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It should be borne in mind that from the beginning of raising funds to the moment the funds are withdrawn for use in a startup, it can take from 45 days to several months.
And – before laying out your startup on a crowdfunding site, you need to reasonably assess the project’s capabilities for this type of fundraising. And based on this, draw up a strategy on how to correctly use all the tools and opportunities of crowdfunding sites.