For entrepreneurs and startups with big business plans, taking the next step to raise capital can require a serious leap of faith. How will the project be funded? Who can help weed out the strong ideas from the weak ones? What will potential customers think of the product itself? Crowdfunding sites are a great way to answer all those questions and more, and there are more than 1,500 crowdfunding companies to choose from in the U.S. alone. Find out what crowdfunding sites are, the four main types of crowdfunding, and some of the top crowdfunding sites for business owners and entrepreneurs.
What Are Crowdfunding Sites?
Crowdfunding sites are websites that allow investors to select from hundreds of startups and business ventures and invest as little as $10 on the growth of the one(s) they choose. These platforms generate revenue by taking a percentage of the funds raised through the site. The U.S. is the largest source of global crowdfunding, with transaction values reaching $537 million in 2021 and some of the top crowdsourcing sites on the internet.
What Are the Different Types of Crowdfunding?
There are four main types of crowdfunding:
- Donation-Based Crowdfunding: People give money to a person, company, or campaign without receiving anything in return. For example, if someone needs an expensive piece of equipment for their new startup, they might ask for donations to help them make that purchase.
- Peer-to-Peer Lending or Debt-Based Crowdfunding: Backers pledge money as a loan to help a company or campaign get off the ground. The loan accrues interest and has to be repaid within a set period of time.
- Reward-Based Crowdfunding: Donors receive something in return for their donations. That can range from a discounted product or service to a branded perk like a t-shirt, coffee mug, etc.
- Equity-Based Crowdfunding: Startups or small businesses give away equity or shares of their company in exchange for investment funding from backers. Usually, the more the backers give, the more shares they receive.
What Are the Benefits to Using Crowdfunding?
A few of the advantages of using crowdfunding for a startup business include:
- Access to non-traditional funding. Entrepreneurs and small business owners can qualify for funds outside the standard sources and avoid the rigid requirements that accompany them.
- A more efficient way to raise funds. Especially with some of the more popular crowdfunding platforms, it can be easy to tell your startup’s story, feature compelling media and messaging, offer incentives and rewards and have a one-stop-shop for potential backers to find you.
- A built-in brain trust. Customers (and backers) are only ever a click or two away. This gives you the chance to call on them for feedback and ideas and field their questions, concerns, and complaints. This continuous communication loop creates a built-in brain trust.
- Added marketing and media exposure. The more popular the crowdfunding platform, the more eyes on your campaign, the higher the potential for press coverage and building brand awareness. This can be a great way to reach backers outside your existing network.
What Are Sites for Crowdfunding?
Lantern by SoFi took a look at some of today’s most popular sites for crowdfunding, conducted thorough research on each, and evaluated them based on the varying needs of many different business types. In the end, we whittled our list down to these eight crowdfunding sites for businesses, all of which have the most flexible funding options:
Kickstarter
Kickstarter is a creativity-focused crowdfunding site based out of Brooklyn, NY. It’s arguably the most popular crowdfunding site in existence. Kickstarter launched in 2009 and it has since helped people pledge $6.2 billion to the 210,099 projects that have been successfully funded on the platform.
Kickstarter Pros
- Massive marketplace with many users
- High visibility, exposure, and familiarity as a platform
- Transparent, all-or-nothing funding
- Exclusive service providers
- Subscription-based model
Kickstarter Cons
- A massive marketplace means massive competition
- You can’t keep your funds if you don’t reach your crowdfunding goal
- Subpar customer service
- More creative-minded than business-minded
- Rules and restrictions on how to launch a product or project
Indiegogo
Indiegogo is a San Francisco-based crowdfunding platform that was founded in 2007 with an emphasis on PRE-mainstream funding. Indiegogo lets people solicit funds for an idea, charity, or startup company, and backers can evaluate campaigns and support entrepreneurs and their innovations from the earliest stages of product development.
Indiegogo Pros
- Campaign creators can continue to raise money after a successful fundraiser
- The earliest backers get limited-time perks and pricing
- Two types of funding options: all-or-nothing or keep-what-you-raise
- Diverse range of categories you can create campaigns for — from Tech & Innovation to Film, Theater, Comics, Charity, Personal Causes and more
Indiegogo Cons
- Less visibility than bigger-name sites like Kickstarter
- Campaigners must personally ship out perks and rewards to backers who claim them
- A 5% fee per standard crowdfunding campaign plus payment processing fees of 3%+$0.20
Seedinvest
When it comes to funding for startups, Seedinvest is an equity-based crowdfunding platform that easily connects startups with investors online. Headquartered in New York and founded in 2012, Seedinvest thoroughly vets its startup applications and only puts forth the ones (less than 2% of all applicants) that pass its self-proclaimed “comprehensive due-diligence process.”
Pros of Seedinvest
- Minimum investments for backers as low as $500
- Accepts non-accredited investors
- Doesn’t involve any ongoing fees
- Its Auto-Invest feature helps investors easily build a diversified portfolio
Cons of Seedinvest
- Charges a 2% processing fee (up to $300 max) per investment, although it’s returned if the company doesn’t reach its fundraising goal
- Investments are risky and highly illiquid
Quirky
Quirky is another NYC-based crowdfunding site, but with a bit of a twist. It’s more of a service that connects a large community of inventors so they can collaborate, gather feedback and facilitate the production and sale of their inventions. Quirky then helps produce them and bring them to market. Even though it went bankrupt in 2015, Quirky came back with brand-new financing and owners and it’s moving forward fast.
Quirky Pros
- Free to use
- Entrepreneurs have the idea, Quirky creates the product
- Easy idea-submission form and process
- Great platform for inventors and “fixers” who see everyday challenges and offer solutions
Quirky Cons
- The process for inventors getting paid is overly involved
- If an inventor’s idea is rejected, there isn’t always an opportunity to refine it
- Quirky retains the rights to the inventor’s intellectual property
- It can alter royalty payment amounts “for any reason”
Fundable
Fundable is a SaaS crowdfunding platform with a focus on small business funding. Headquartered in Powell, Ohio. Fundable generated over $80 million in funding commitments from investors, customers, and friends in its first year alone. Fundable’s main claim to fame is offering hands-on support to startups and small businesses as they navigate the fundraising process.
Fundable Pros
- Created by startup founders who can relate on a personal level
- A hands-on approach from staff during every step of the process
- Offers both reward-based and equity-based crowdfunding
- Minimal fees for successful campaigns
- Campaigns are prescreened, which benefits backers
Fundable Cons
- Entrepreneurs don’t get funds if they don’t reach their funding goal
- Flat monthly fees can get costly for unsuccessful campaigners
- Campaigns are prescreened before they get approval, which hurts pitching companies
CircleUp
CircleUp is an equity-based crowdfunding platform based out of San Francisco, CA. It was created with social enterprises and B Corporations in mind. CircleUp uses a proprietary, data-centric technology called Helio to predict breakout companies and shine a light on untapped potential, and it caters mainly to early-stage consumer brands with physical retail products. Think: SmartyPants vitamins.
CircleUp Pros
- An emphasis on diversity, inclusion, and holding people accountable
- A quality marketplace with access to over 800 investors, 50% of which are institutions
- A separate $125 million Growth Partners Fund, which uses its Helio software to identify startups that deserve investment
CircleUp Cons
- Fee structure is vague, and it varies
- Investors must be accredited
- Only 7% of startups are approved to raise money on its website
- Campaigns have fundraising minimums and maximums
LendingClub
LendingClub is a peer-to-peer lending-based loan crowdfunding site that’s headquartered in San Francisco, CA. LendingClub borrowers apply for loans within its network of lenders to back up to $40,000 in investments. The company thinks accessing money should be seamless and offers everything from personal loans to business loans, education loans, and more.
LendingClub Pros
- The minimum credit score to apply for a loan is 600 — a pro for subprime borrowers
- No hard credit inquiry is required to check loan rates on the site, which means less credit score damage while you’re shopping around for a loan
- Borrowers can stretch the loan repayment terms to three years or even five years
LendingClub Cons
- There’s a medley of fees for borrowers, like a $7 fee if you pay by check, a $15 low balance fee, and a 5% late fee
- It can take up to seven days for LendingClub to actually turn the money around and get it into the borrower’s account
- LendingClub charges an origination fee, which is a payment associated with the establishment of an account with them.
Patreon
If you’re searching for crowdfunding for a small business or a platform that lets you raise money for your artistic endeavors, Patreon might be a solid fit for you. Patreon helps artists give their fans exclusive access to their content and insight into their creative process. In doing so, artists can create a recurring revenue stream, feature work their audience loves and build a connection with their fanbase.
Patreon Pros
- Helps creators crowdfund continuously
- Offers rewards-based crowdfunding opportunities and multiple subscription plans
- Keeps it light on the restrictions in comparison to other crowdfunders
Patreon Cons
- There can be snags in collecting funds for creators
- There aren’t any built-in promotional tools
- Many people have complained publicly about the platform
Alternatives to Crowdfunding for Your Business
For some startups, aspirers, and creators, crowdfunding seems like an ideal platform to raise seed funds. Still, there are other options for those who want to take a more traditional approach. Here are a couple of alternatives to crowdfunding for your business:
Small Business Grants – Grants for small businesses are a great way to gather funds for a product or project. Grants are lump sums that are awarded to a business or business owner by federal, state, or local governments or even private corporations. Unlike loans, grants don’t have to be repaid, although they may have stipulations about how the money can be spent. If you visit Grants.gov, you can find a list of small business grants and search them based on a variety of criteria.
Small Business Loans – Small business loans offer a variety of options to entrepreneurs and startups that need to borrow funds to grow their company. They often come in the form of an SBA loan, which is partially-guaranteed by the U.S. Small Business Administration (SBA) and issued by participating lenders. They can also come in the form of a personal loan, term loan, line of credit, cash advance, or even as equipment or startup financing. If you’re trying to put your best foot forward by getting small business funding for your startup or even invention or idea, a small business loan can help you get on the right track.
The Takeaway
Crowdfunding sites are websites that allow investors to select from hundreds of startups and business ventures and invest as little as $10 on their growth. There are four different types of crowdfunding: donation-based, debt-based, reward-based and equity-based. For a business or entrepreneur, the benefits of crowdfunding include access to non-traditional funding sources, a more efficient way to raise funds, having a built-in braintrust to refine a project or business plan, and extra marketing/media exposure.
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