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What is crowdfunding and how does it work?


Laura Newcomer of Giving Assistant explains the mechanics of this funding phenomenon


 

Crowdfunding is more popular than ever. In fact, research suggests this fundraising industry will grow to a whopping $300 billion by 2025.

A huge variety of non-profits, start-ups, and even individual people tap into crowdfunding to advance their goals. Crowdfunding represents a seriously huge pie, and we think every organization working for good deserves to enjoy a piece of it.

What is crowdfunding?

Crowdfunding is a way to raise small amounts of money for a project or cause from a large group of donors. It’s called crowdfunding because it arises from the collective effort of a broad range of supporters.

Because most crowdfunding campaigns run online, they’re often shared via social media and dedicated crowdfunding platforms. This means there’s an opportunity for crowdfunding campaigns to reach a huge audience.

Even when they don’t go viral, these campaigns tap into a broad network of support. Rather than relying on large donations from a small number of supporters, crowdfunding draws on donations of all sizes from supporters from all walks of life.

The beauty of crowdfunding is that it democratizes the fundraising process. Instead of soliciting only the wealthiest donors, crowdfunding focuses on obtaining smaller donations from many more people who are excited about a project or cause. In the process, it helps grow a network of supporters and spread the word about an organization.

How does crowdfunding work?

Crowdfunding can be used to raise funds for a variety of different organizations, projects, people, or causes. For instance, some start-ups rely on crowdfunding to raise capital for their budding businesses. Non-profits might use crowdfunding to meet a particular fundraising goal. And individuals might crowdfund to survive financial setbacks (such as medical expenses) or support a personal project.

Many people or organizations use a dedicated crowdfunding platform. Individuals might choose YouCaring or GoFundMe; businesses tend to prefer Kickstarter or Indiegogo; and non-profits often lean toward platforms such as Crowdrise, Fundly, and FundRazr. There are many other crowdfunding platforms out there, and it’s likely more will crop up as the practice grows in popularity.

As to how crowdfunding platforms make money, the answer is actually pretty simple: they collect a portion of whatever the project raises (the exact terms vary from site to site).

Similarly, the process for crowdfunding varies depending on the platform; but as a general rule, organizations set up a donations page and drive traffic to that page. There, supporters can pledge to back the organization or project at varying levels, which may have rewards attached to them.

Another form of crowdfunding is when donors themselves set up campaigns for a specific cause. This is often referred to as Peer-to-Peer fundraising, or P2P.

If done correctly, crowdfunding can offer many advantages such as helping an organization or non-profit expand its reach and connect with new supporters. It can also help meet fundraising goals without the need to court major donors for months on end.

However, there can be some challenges as well – such as choosing the most suitable platform. There are many to choose from and each one is tailored for different needs. In addition, if there isn’t a strategy in place or many followers, it can be hard to gain traction from the start.

Many non-profits have used crowdfunding to successfully raise additional donations. With crowdfunding gaining in popularity as a reliable and effective fundraising tool, there are now many platforms to choose from.

Some popular crowdfunding websites you might be familiar with include:

GoFundMe: this site focuses more on charity and individual causes

StartSomeGood: many individuals use this to fund their start-up or to raise money for their favourite non-profit or cause

KickStarter: designed for bringing creative projects such as film, music, art and theatre to life

CrowdCube: equity crowdfunding platform designed for entrepreneurs

Indiegogo: offers crowdfunding for people to raise funds for an idea, charity or start-up

Giving Assistant: this shopping platform raises small amounts from many online shoppers who donate their cash back to a non-profit.

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