Crowdfunding platforms

When a startup or idea author needs additional funding, there are various ways to achieve what they want. One of them is crowdfunding, which makes it possible to raise funds and attract investors to support the project.

Why Crowdfunding?

Crowdfunding is a way to collectively raise money from Internet users who want to join a project. It is used for a variety of purposes by both legal and private individuals, democratizing the raising of primary capital without geographic or demographic boundaries.

Through crowdfunding, project creators receive financial support for their startups and businesses, training and charitable projects, etc. The investor, in turn, sees the transparency of cash flows and receives a portion of future profits or a full refund in return for their investment, unless the possibility of gratuitous donations has been negotiated.

Crowdfunding companies have specializations, including technology projects. They help to attract investment from both ordinary users and large companies that have shown interest in an IT product.

The sites form their own audience, which helps create a brand and develop a system of rewards for active investors. The best collection goes to the solutions for daily life that meet the needs of users.

Crowdfunding platforms are sites that allow fundraisers (funders) and investors (backers) to interact. When launching a fundraiser, the amount, purpose, and timing of the fundraising are clearly specified. This way of financing works most effectively for creative and small business projects, for example, IT startups.

Three types of crowdfunding are most often used for It projects:

• remuneration – giving valuable prizes to investors;
• debt capital – repayment of money with interest from profits;
• shares – a share in the project in exchange for investment.

To a large extent, the speed of fundraising depends on the following factors:

• the audience’s interest in IT topics;
• ability of the audience to understand the essence of the project;
• the adequate correlation between the budget and the level of demand for the finished product;
• the term of attraction and the rules of the site;
• an effective presentation, the importance of the first impression of the project.

Pros and cons of crowdfunding

The benefits of investing through online fundraising:

• the investor buys stocks that can grow in the long run;
• there is no investor managing the financial flows;
• the collection period is from 1.5 weeks to 8 weeks;
• marketing is simplified;
• no need to spend time on paperwork and negotiations with investors;
• revenue generation comes with less risk;
• media support grows as the number of backers grows; successful projects become attractive to sponsors and buyers;
• the opportunity to conduct research on user interest in the relevance of an idea or project.

Disadvantages:

• the need to do a lot of work on the design and promotion of the project;
• the complexity of calculating the required amount of funding;
• the rules of the sites, the need to study fundraising policy;
• conflict of interest of the backer and the backer;
• theft of ideas by better-off users;
• mistrust, a desire to double-check the idea and its implementers for fraud before parting with money.

How to place an IT project on a crowdfunding site

The first step is to determine the goal of the project, which the crowdfunding site will then be chosen for. The more successful and bright the start, the more chances that the crowdfunding site will connect to its promotion. If you manage to collect a quarter of the necessary amount in a week after the launch, there is a high probability that it will be collected in full.

The creator of the project will need to:

• set a realistic and achievable goal;
• analyze the uniqueness of the project, the range of potential consumers, the interest for sponsors;
• assess the resource base – whether the help of the team will be required, the amount of work to be done;
• draw up a business plan, taking into account all the costs, including the site commission, taxes;
• Determine the remuneration for partners-sponsors;
• to present the idea for introduction to the essence and purpose of the project in the form of a short video, creative photo-story, text, commercials, infographics;
• communicate with sponsors, promote your project, share news, add content, and fuel interest;
• not rely on the algorithms of the site, independently seek and attract an audience;
• choose a site.

How to choose a crowdfunding site for an IT project

Special resources are used for crowdfunding, which are chosen according to a set of criteria:

• IT focus;
• threshold of entry for investors;
• capabilities of the project participants;
• the size of the commission;
• the nuances of raising and receiving funds;
• feedback on the reliability of the platform, the number of successful projects, and attendance.

If an interesting and promising project is tied to an unsuitable platform whose audience is not ready to perceive IT topics, it will fail. To find out the nuances of work, you can contact those who have already received funding through a particular platform.

Studying the terms of cooperation is a must. Particular attention should be paid to:

• the list of documents for fundraising;
• whether the site provides assistance in the design and promotion of the project;
• the percentage of commission and hidden costs;
• ways to withdraw money;
• whether there is a time limit for the collection;
• how the fund deals with the case if the planned amount is not collected on time;
• whether there is help with taxes.

It’s important to know all the rules of the platform so you don’t lose all your donations!

There are several scenarios for receiving funds:

• All or nothing. A strict requirement to raise the full amount in the designated time frame. If the amount was specified as $1,000 and $999 is raised, the money will be transferred back to the sponsors and the collection organizer will receive nothing. Some sites have the option to extend the collection deadline, which makes this scenario less dramatic.
• At least half. On some sites, even half of the collected amount is counted and made available for withdrawal. The only downside is that the commission is higher than what was originally expected.
• As much as collected, so much received. The site can give back any amount collected, but if it is small, it raises questions about whether it will be enough to implement the project and pay the commission.
• Before Winning. The mechanism allows you to raise money until you win, without any closing date. As a rule, this method, unlike charity, is not suitable for IT topics.

After the site is chosen, a contract is signed. It is necessary to register, create an account and provide the required documents, place a presentation and start an advertising campaign to attract as many sponsors as possible. As soon as the stated amount is accumulated, it is handed over to the collection organizer.

Completing the fundraiser means having to implement the project. You need to be prepared in advance to deal with a multitude of problems, from prototype production, product packaging, and logistics to interaction with sponsors.

Once the project is implemented, you need to fulfill the commitments you made and pay back those who supported the project. It is always necessary to send rewards to sponsors. Money raised through crowdfunding is income and is tax deductible!

Crowdfunding is not a panacea for attracting financing, but one of the tools, along with venture funds. Promising projects interest not only ordinary people but also large investors. If the idea is beautifully presented, an entire community supporting the brand can gather around the startup. To launch a project, you have to do some preparatory work, draw up a business plan, and take into account all the dubious points.