Overview. What is Crowdfunding and how it works in 2021?
In a few years, crowdfunding has become a serious alternative source of financing for companies, associations, and individuals. And people are asking, “How to start a crowdfunding site?” more and more. Let’s figure it out.
What is Crowdfunding?
However, before we get down to how to create a crowdfunding website, we need to define what crowdfunding itself is.
Crowdfunding is a term that designates participatory financing or literally financing by the crowd. It is mainly carried out on Internet sites and there are three forms.
The most well-known is the donation. We can do it without or with a reward. In general, the reward is rather symbolic (a mention of your name on the site, a T-shirt with the effigy of the company…).
The donation is recommended to test your product or service on the market and to know the public`s opinion. It also allows for creating a leverage effect on other financings (bank loans, grants…).
The second form of crowdfunding is crowdinvesting (or investment). It is a participation in the company in the form of capital, bonds, or royalties. It is more commonly referred to as crowd equity because the majority of the amounts raised are in equity.
Crowdinvesting is useful to finance the development of an innovative project or one that is not very popular with traditional investors. In some cases, equity investment entitles investors to tax benefits.
The third form of crowdfunding is crowdlending (or participatory loan) with or without interest. The loan allows, in general, to finance expenses not taken into account by the banks or intangible investment projects. However, the company must have been in existence for at least two years to be eligible, especially for interest-bearing loans. The amount of the loan disbursed is limited by the law of the country where the startup is a resident.
How does crowdfunding work?
The principle of a crowdfunding campaign is simple. The project manager opens an account on the platform that suits him best. It specifies the funding method (if the platform offers several) and the desired amount. The campaign cannot last indefinitely, so the platform limits the maximum duration of the campaign. The sponsor must also open an account on the platform.
If the requested amount has been reached at the end of the campaign period, the sponsor’s account is debited and the project manager receives the funds. For its part, the platform takes a commission on the amount raised (usually 5 to 12%) if the goal is reached.
Trends in Crowdfunding projects
The stabilization of the global economy has brought positive trends about crowdfunding. The trends presented by popular platforms allowed us to dwell in more detail on the three main trends observed in the market since the beginning of 2021 and which will help us to create a crowdfunding website:
The stabilization of the donation market
With a different structure, the trend that caught our attention in this philanthropy market is the constant innovation of the players. The loss of market share in certain segments of the sector is notably compensated for by embedded micro-donation solutions, rounding up on payment terminals or payslips, or solutions to find outlets for young people who wish to get involved in this type of project but do not always have the appropriate financial means.
Real estate crowdfunding: a growing niche
Several platforms have decided to dedicate themselves solely to the financing of new constructions or the renovation projects of real estate development. This is called crowdfunding. Some also speak of crowdbuilding in some cases. This is not a rental investment but an investment in a real estate program via financial securities.
The rental investment consists of buying real estate with several people and withdrawing returns on the rent of this same property.
This area remains the most dynamic sector of the economy and the driving force behind the growth of crowdfunding. It is still a product popular with investors who incorporate it into their savings diversification logic along with other types of investments.
Renewable energy is the second-largest growth sector for the crowdfunding market, with 75% growth. Social expectations on the part of investors seeking to give meaning to their savings, proven profitability of projects that investors know are sustainable, and project owners who have made participatory financing their own as a source of funding were cited as the main factors in the sector’s growth.
Crowdfunding Website Features to have in 2021
The question “How to start a crowdfunding platform” and the interest itself has grown to an unprecedented scale. And this is not surprising. Each platform is dedicated to a particular theme and cannot work effectively or win with a multitude of directions (like a generalist classifieds site, for example). You must therefore specialize in one area to succeed in the face of well-established competition.
However, it is worth considering the fact that platforms already exist in most popular areas, and you need to introduce a set of basic functions to be able to meet them:
- Simple and fast registration.
- Listing of projects.
- Account management.
- Payment and marketing.
- Security and support.
More than ever, the service provider must be able to bring own expertise from a technical point of view, but also graphically and with features, because in this type of site the presentation matters a lot. It is a factor of success, contrary to other sites.
Advanced Crowdfunding Website Features
Support and assistance to projects
Many startups that come to your platform may not fully understand what exactly needs to be done. How to promote a campaign on the platform? How financial management works? and many other questions. The user should feel comfortable and know that they will be helped to solve any problem on the platform. For this, the support system should work.
In addition to the basic functions of the crowdfunding platform, care should be taken to ensure that users can freely interact with each other. For example, it can be a space where users can post announcements about grants, competitions, internships, scholarships, schools, travel. Or create content, for example, about creative entrepreneurship. This will help startups get more feedback on their projects.
Funds calculator will help startups calculate the amount of collection, amount of taxes, platform commission or payments. This automated feature will make using the platform more comfortable.
Reminders and confirmation
Communication with users is important. Create a tool that will remind you of any changes to the project. Also, important actions should be recorded by e-mail. That is, the platform must keep its user on all “events” and actions.
Let’s create a preview page for a campaign that hasn’t started yet. This will attract the first investors even before the start of the campaign.
Main Crowdfunding Website Challenges
There are several challenges of a process like crowdfunding that should be considered when finding an answer to the question “How to a create crowdfunding site?”:
The most obvious reason for project creators to start crowdfunding websites is fundraising. And without the trust of sponsors, this is not possible. People need to understand where and why they give their money.
A detailed and interesting campaign story will convince people to support your cause. Everyone would like the page to be up and running as soon as possible, but it’s still important to take the time to write the best possible description. Here are the most important questions the story should answer:
- Who is the beneficiary of your fundraiser? Explain honestly and completely who the beneficiary is and why that person, family, or organization deserves financial help. If the fundraiser is going in your favor, fearlessly explain who you are and why you need so much help from others.
- What is the main problem? Let donors know what problems you or the recipient is facing.
- When do you need funds? It is important to let supporters know when you need funds to communicate the need urgently.
- Why do you or the recipient need help? Explain why donations are needed. Explain in detail what you are going to do with the money that will be raised through this campaign.
- How can others help you? List in detail the costs you or the recipient need to pay. This information will help you understand the impact donations will have.
Since this is a lot of money, privacy and security will be vital to your crowdfunding site.
And it’s worth starting with an SSL certificate. Now, for many reasons, an SSL certificate should be on every site, and it will not be superfluous to remind once again that any site associated with personal data, and even more so with money transfers, must work under a secure protocol.
In addition, a reliable way of verifying the identity of potential donors and ensuring KYC (Know Your Customer) requirements is required. You can find many similar solutions on the market that can be integrated into your site or used as an external source of information.
Also, you need a full-fledged support service that will deal not only with KYC but also with the resolution of disputes, typical problems and help users.
Complying with law
Since the beginning of crowdfunding in its modern version, the governments of most countries have created a legal framework to regulate this new business and prevent any abuse. This is why an investment platform must receive its legal status.
The status gives the platform the right to raise more funds and invest in legal structures. In turn, they must communicate the risks associated with the proposed investments and conduct their activities transparently.
The problem is that the investment of funds by funders is made through online platforms. There is no personal contact between the owner of the funds and the owner of the idea. Only the information that is presented on the business project’s website is available.
How To Start A Crowdfunding Website: Step-by-Step Guide in 2021
Step 1: Conduct an analysis, understand how competitors work
First of all, a successful crowdfunding campaign should be prepared at least 6 months in advance and follow a clear schedule. Analysis of other platforms is the most important. It helps you to understand how they set up a crowdfunding website.
They are not all created with the same features, and it is important to carefully analyze the pros and cons. Before you start, we recommend that you make a comparison of platforms based on three criteria:
- Proposed types of financing
The choice of funding type is a natural selection criterion. Indeed, there are 3 types of equity funding: donation, investment, and loan; and crowdfunding platforms usually offer only one or two types of funding.
- The success rate of the platform
The second criterion to consider is the success rate of the platform: out of the 100 crowdfunding campaigns launched on the platform, how many are successful in reaching their funding goal, and why are they successful?
Rather than focusing on the platform`s overall success, we recommend that you refine your analysis by considering only projects similar to yours in terms of both the business sector and funding size.
- Platform’s audience
The final criterion is the audience of the platform. The audience is vital because the success of your campaign depends directly on your ability to get people talking about you to attract as many participants as possible.
We recommend that you analyze your audience based on three criteria: the number of active participants on the platform, the number of Facebook followers, and the number of Twitter followers.
Step 2: Choose the type, method of monetization, and target audience
Once you have completed the analysis, you can choose the optimal crowdfunding business model to start a crowdfunding site. Literally, the way your site will raise money from investors and on what terms. Such models can be roughly divided into three types:
Donators participate in crowdfunding campaigns without expecting any return. It is suitable for charitable and relatively small projects, when people chip in a few dollars each for initiatives they like.
A variation of the donation model, only in this case investors receive a predetermined reward. The reward can be anything from a mention on a blog to a finished product. Investors invest and get a stake in the business or at least a financial return on their investment. Reward-based way is a good model for commercial initiatives.
This item directly means an investment in the shares of a commercial enterprise. That is, users who made a contribution equal to or greater than the value of one share become a shareholder of the enterprise (owner of securities). This approach gives the user the opportunity to make a profit if the company is successful. In addition, it is possible to trade your own stocks.
The essence of this type is loans. Users lend money to the project at a certain percentage. And it is this percentage that will be the investor’s profit.
REVENUE MODELS OF CROWDFUNDING PLATFORM
- Commission for the amount raised
The profitability of the platform depends on the amount collected by the startup. The platform receives money only if the crowdfunding fee is successfully closed. Most platforms use this method of generating income. For this income model to be profitable, the platform must receive a constant stream of new projects and investors.
- Paid services and features on the website
The platform monetizes some of its services, such as marketing, campaign management, branding, prototyping and promotion.
This is the easiest way to monetize. The profit comes from advertisements placed on the platform.
- Promoting campaigns
Managing and promoting existing campaigns on the platform can be a good way to monetize. Campaign owners will benefit from always being in search trends and what they are willing to pay.
In many ways, the project`s success depends on whether a community has been formed around the author. By and large, money comes from a very specific community, so every good project should meet the needs of this community.
Before thinking up a plan for promoting your crowdfunding campaign, you need to compose a core target audience and use it as a basis for designing your project description and everything else.
Step 3: Turn your idea into a business plan. Set a budget
The idea and then the goal must be evaluated objectively, and you must understand how to create a crowdfunding website. People, as a rule, are not interested in getting involved in a project they think will fail. We recommend minimizing the business plan.
It is better to gather some community on a crowdfunding platform and, together with them, implement a project that is not the most ambitious. And then you can work with these people with the help of, for example, newsletters on the platform, making larger fundraisers.
Planning for the financial component should be the next step. Launching a crowdfunding campaign requires a real budget. The financing plan identifies the resources that the company needs to ensure that cash is “used” and ensures that costs and results are balanced so that the company’s cash flow is always positive.
Producing a video presentation of the project, press releases and digital content needed to promote your crowdfunding operation requires expected costs. In addition, there are platform costs and, depending on the type of funding desired, any legal or audit costs.
Step 4: Select the Best Design & Web Development Partner
When developing a successful crowdfunding campaign, the development team must set a clear goal – the site must be recognizable and focused on the target audience. When entering the platform’s page, the user should immediately understand what the site is aimed at and how to perform certain actions: register, launch a project, view a listing, invest money.
And the Northell team has a comprehensive article that will tell you about our experience in creating design.
Step 5: Start with the MVP of your idea
When you know exactly what kind of crowdfunding platform you want to create, you can start creating a minimum viable product (MVP).
The best way to do this is with the prototyping technique. Its essence is to take the pains, desires, pleasures, preferences, and behavioral patterns of user characters and match them with the platform`s functions being created.
We already have a piece on our blog that fully explores the concept of MVP and its strategies. From there, you can get more useful information for your game.
Step 6: Create your Crowdfunding design. Right UX.
When creating a crowdfunding website, always focus on the target audience and develop the design and features specifically for it. However, make sure that the interface of the site remains familiar and understandable, otherwise, you will create a sense of discomfort for the visitor, and he will leave your site. And you can derive the basic principles of good design:
- Recognizable interface
A list of sections at the top, a traditional menu on the top right or left, a card-style listing, and a clean and minimalistic design.
- A pleasing color scheme
A small number of colors that the user will associate with your niche and you through perceptual and direct associations.
- Mobility / Adaptability
The design should adjust to the resolution of the visitor’s device so that it does not exceed the screen, and at the same time, the key information is present.
However, it all starts with creating a wireframe. This approach will help you to work out every element that affects the user experience in the most detailed and precise way. You will be able to see how the user will interact with the platform. Work out the entire user’s path and make the platform as comfortable and ergonomic as possible.
There are two types of prototype wireframes:
- Low fidelity prototypes are much faster to create and usually facilitate teamwork on a project. These can be sketches on paper or a whiteboard.
- High-fidelity prototypes feature more relevant content, specific font variations and may contain more accurate information about image sizes and even button styles. In most projects, our team develops high-fidelity prototypes. At Northell, we use this particular type.
This is followed by UX testing. And after that, the models and the first beta versions of the future product have already been created.
Step 7: Testing on your users
After the first crowdfunding platform prototype is created, it must be tested: at first with the help of QA-, QC-specialists, and when most of the errors and deficiencies will be eliminated through real users. The approaches can be completely different.
For example, at Northell, we use our own UX testing.
We have formed a UX Lab where the testing process is based on real-world use. Special equipment tracks the tester’s eye movement while using a specific UX.
Then the system displays the information, and it is possible to compare the data of real use and analytics. Thus, the test results are obtained as close as possible to real use. You can find out more detailed information about testing methods by contacting our specialists.
After eliminating problems and testing in actual conditions, the MVP can be launched or continue to develop. Both variants have their pros and cons. However, the main thing to understand is that if the market has low competition or competitors will appear soon.
And you should develop crowdfunding and launch it on the market as soon as possible, but if the market is full of competitors, then the product should be finished first.
Step 8: Starting your Crowdfunding website development
The most voluminous step of launching a crowdfunding platform is writing the site code, testing it, and deploying it. You can start crowdfunding design from scratch, which is long and expensive but gives you maximum control and allows you to create a really unique site. Or you can use templates and almost ready-made solutions on the Internet.
However, before you do anything, seek legal advice. Quite often, such activities require registration or a license from one of the government agencies, such as the SEC in the United States or the FCA in the United Kingdom.
Also, the services of lawyers are needed in order to properly draw up a user agreement and standard forms of contracts, which will govern the relationship between the parties to your platform.
Step 9: Test and Launch your Project
The launch of your site should be a high-profile event, or rather, you have to make it happen. This will draw maximum attention to the crowdfunding website. To do this, you need to:
- Find authors of several interesting, worthwhile crowdfunding campaigns who will agree to use your platform for fundraising. Make sure that the first initiatives raise money as quickly as possible.
- Organize email marketing and social media campaigns in advance.
- Make discounts available to all projects at the startup.
Step 10: Start a build full-size product
With a ready and successfully tested prototype, you can continue to develop the platform by adding all the basic functions which have all platforms, for example, real estate crowdfunding:
- Registration and authorization form;
- Detailed account management;
- Monetization and project management;
- Deposit and withdrawal functionality;
- Security system and technical support.
How To Start A Crowdfunding Website: The best technology stack
In developing crowdsourced platforms, the Northell team uses a large stack of technologies, including:
- Programming: PHP, Python, Node.js;
- Modern approaches to creating a responsive, cross-browser layout;
- PostgreSQL, MySQL, NoSQL, MongoDB, Redis.
How much does it cost: Start A Crowdfunding Website
The organization of a crowdfunding platform is not limited to the development of a website, an app, and social media representations. Other stages are also important:
- Hiring employees;
- The formation of a technical support base;
- Establishment of a legal entity;
- Obtaining permits and licenses.
All of this requires additional funds, which must also be taken into account in determining the potential budget for the project. And this is by no means a complete list. But on average, the full development cycle of a crowdfunding platform is estimated at $250,000.
The final cost may vary up or down based on the capabilities and needs of the team (specialist) implementing the project. The best option would be to contact us, Northell, for a full consultation and preliminary assessment
How To Start A Crowdfunding Website: Summary
We strongly recommend discussing the creation of a crowdfunding platform and all areas of digital service through a specialized web agency. Responsible and competent specialists will be able to translate the customer’s idea into reality as precisely as possible, satisfying all the client’s technical requirements and personal wishes.