How to choose a crowdfunding platform

May 16, 2024

Venture capital funds and angel investors will always have their place, but now crowdfunding for startups offers a new, democratic way to raise capital. The web3 approach to venture capital is appealing to masses of retail investors who can't achieve accredited investor status, but want to fund ideas they love, and to startup founders seeking new paths to funding.

If you're considering crowdfunding for your startup, here's what you need to know.

What is crowdfunding for startups?

Most of us are already familiar with crowdfunding by non-profits trying to raise money for their next project, or individuals looking to finance their degree, their wedding, or their trip round the world.

But crowdfunding works for startups, too, especially those in the web3 space. If you get your marketing right, you can spread the word about your startup faster and more effectively. Crowdfunding got a boost from COVID-19, because it opens up a bigger funding audience spread across the globe, without anyone having to travel.

In many ways, crowdfunding is like raising funds through any capital round — you set a target amount, pitch your business, and define how the funds will be spent — but you'll have a larger, more diverse audience. When the campaign ends, you'll get the funds in your linked account, minus whatever fees the platform charges.

There are 4 main types of crowdfunding:

  • Rewards, where you give each donor something in exchange for their donation. It's mostly used for creative projects.
  • Donations, where the donor receives nothing in return. It's mainly for individual and non-profit fundraising.
  • Debt-based crowdfunding, a form of peer-to-peer (P2P) lending. The funds you receive are a loan that you need to repay, with interest.  
  • Equity crowdfunding, where the investor gets a share of the company in exchange.

Each type could be used for startup crowdfunding, but equity crowdfunding is the most relevant and often-used. By 2020, startups had raised more than $2.5 billion worldwide through equity crowdfunding.

What to look for in the best crowdfunding sites?

There are loads of crowdfunding sites, but they vary greatly in their policies, audiences, tools, and level of service. It's vital to do your homework before you set up your campaign. For each platform, look for past campaigns run by startups similar to yours, and see how well they performed, how many investors they attracted, whether they exceeded their amount, etc. You should also check live campaigns, to get an idea of platform liquidity.

Here are some main issues to bear in mind when you compare top crowdfunding sites.

  1. Fees and funding options

    Every platform charges fees to pay for their services. The only question is which kind of fees and how much you'll have to pay.

    Typically, you can expect to pay a percentage of your total funds as a platform fee, plus a payment processing fee for each transaction. The average payment processing fee is 2.9% plus $0.30, and platform fees vary from around 3% up to 5% or more. Some sites charge other fees like arrangement fees, administration fees, or placement fees.

    Usually, you'll pay the fees when the campaign closes. Some platforms won't charge you if you don't reach your goal.
  2. Access to funds

    You'll need to link a business account to set up a campaign, and you'll receive the money raised in that account, a few days after the campaign ends.

    Different platforms have different rules around how and when you can cash out the money you've raised. Some take an all-or-nothing approach, where you only receive the funds if you reach your goal. Others let you withdraw money at certain points along the way, which is helpful for long campaigns or to pay for expenses.
  3. Campaign duration

    Check how long your crowdfunding campaign can last. Successful campaigns need to run for at least 9 weeks, but some platforms limit them to 30 days or 45 days, which isn't long enough to make a real impact.
  4. Marketing tools

    Crowdfunding success relies on marketing your startup, so you need a platform with an effective marketing team, and marketing tools and integrations to help you spread your pitch further. It must permit you to post a pitch video, but also look for more ways to brand your campaign, and integrations to make it easy for you and your supporters to share your pitch across social media.

    See whether the platform includes marketing help like a dedicated PR team, access to its own email database and social media following, and some even help with display advertising. Check what kind of RoI (return oninvestment) each client achieves through the platform's advertising and through their own marketing.

    Advanced analytics are a big help here too. The best crowdfunding sites include native analytics tools that show granular information like conversion rates, attribution, etc.
  5. Donor details

    One of the big advantages of crowdfunding is that your investors can turn into customers and repeat investors — but that's only possible when you get their contact details so that you can continue the connection. Look for platforms that give you access to donor details so you can stay in touch.
  6. Target audience

    It's important to choose a crowdfunding platform with the right audience. In general, the bigger the audience, the better, because crowdfunding works by drawing smaller donations from a bigger mass of people.

    However, it can be worth using a platform that targets a niche audience. Some focus on specific locations, like FrontFundr for Canadian-owned businesses; others on types of founders, like iFundWomen for female-owned startups; and some on specific verticals like tech startups.
  7. Ease of use

    Unless you're very tech-savvy, you'll want a platform that's easy to use and customize for your startup's branding, with intuitive marketing tools. It helps to have supportive customer service, such as live chat, 24/7 hotlines, and responsive customer support teams.
  8. Integrations

    As well as marketing tools and integrations, you also want a site with other integrations that make it easier and smoother to manage your campaign. For example, you should be able to upload donations that arrive offline, such as by check or cash; integrate offline fundraising events; and customize tax-deduction receipts to save time.

The best crowdfunding sites help your startup take off

Once you've chosen the best crowdfunding platform with the integrations, donor tools, fees, and policies that match your needs and capabilities, it's time to build that killer pitch and spread your ask far and wide. There are no guarantees when it comes to raising venture capital, but with some hard work, top crowdfunding sites can help you get there.

Key Takeaways

Choose a crowdfunding platform by considering fees, funding options, campaign duration, marketing tools, and ease of use.

Research each platform's audience and past campaign success to ensure alignment with your startup's needs.

Look for platforms offering donor details access, integrations, and strong customer support for better campaign management.