Last December, Nur-E Farhana Rahman sat in an Uber car in New York City, tears streaming down her face. Her monthslong project to raise $30,000 on Kickstarter, to expand production at her jewelry company, was about to end in failure.
Rahman had thought she was prepared to crowdfund: After she and her mother started Knotty Gal, which handmakes knotted neck-laces and other accessories, she intensively researched successful campaigns and planned her own. More than 120 people gave her almost $18,800 — but by Kickstarter’s all-or-nothing rules, falling short of her goal meant the entire campaign had come to naught.
“We probably picked the wrong platform,” says Rahman, referring to a Kickstarter audience that tends to favor gadgets over jewelry. “We chose Kickstarter because it had more users, but more doesn’t mean better quality if it’s not the demographic you’re trying to target.”
It’s all too easy to make that mistake, especially as crowdfunding’s popularity — and seeming accessibility — grows so rapidly. Last year, North American crowdfunding and peer-to-peer lending campaigns raised $9.46 billion, up 145 percent from 2013, according to consulting firm Massolution.
So how do you know which platform is right for your startup? Pay attention to pricing, the type of campaign a platform specializes in, and what sort of users it attracts, says Jason W. Best of Crowdfund Capital Advisors. We’ve compiled these details along with fundraising estimates for U.S. platforms. So before you start asking for money, consult our guide to cultivating the popular crowds.
Data on funds raised per platform and per sector is according to the companies and Massolution estimates.
DONATIONS: GET MONEY FOR A CAUSE
If you have an idea for helping the world — or just yourself — but no product or service to give backers, you’re basically asking for charity. That’s OK: A donor platform lets you fundraise with no obligations to investors. Common uses range from the selfless (starting nonprofits or socially conscious businesses) to the more, well, self-centered (including medical bills and vacations).
CrowdRise
Use it if: You have a charity-minded idea, especially if you can swing some sort of a celebrity endorsement.
But watch out for: Some backers have been turned off, Lee says, by the cavalier tone of the CrowdRise tagline: “If you don’t give back no one will like you.”
Total funds raised since founded (2010): More than $200 million
Total funds raised in 2014: $180 million
Founders: A celebrity power couple (actor Edward Norton and producer Shauna Robertson) and a fraternal pair of online entrepreneurs (Robert and Jeffrey Wolfe, founders of the outdoor-apparel retailer Moosejaw), who wanted to raise money for a wilderness charity.
Known for Star power: Celebrities including Lady Gaga and Seth Rogen have used it to raise money for their causes.
Pricing: About 3 percent of donations for individuals; up to about 8 percent, including credit card fees, for charities.
GoFundMe
Use it if: You’re rebuilding after a disaster or creating a product with a charitable impact, and you want to tap a very wide audience.
But watch out for: GoFundMe is filled with sad stories and requests for vacation funding that can seem frivolous. So consider whether asking for business financing here sends the wrong message to potential backers.
Total funds raised since founded (2010): More than $1 billion
Total funds raised in 2014: $470 million
Founders: Brad Damphousse and Andrew Ballester, who wanted to create an online savings account for vacations.
Known for: Almost anything. Medical bills, student loans, volunteer projects, and wedding expenses are some of the requests on GoFundMe, which now claims to be the world’s largest crowdfunding platform by money raised in 2014. It also gets pulled into social and political issues. For example, this spring GoFundMe banned “discriminatory” campaigns after some users raised funds for businesses that violated state laws by refusing to serve same-sex couples.
Pricing: 8 percent of every donation, including a 3 percent credit card processing fee.
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EQUITY: RAISE CASH BY SHARING OWNERSHIP
This is the next level of crowdfunding for many businesses–and the most complex, since it mimics some parts of the stock market. That can mean complications, from pending regulations, for example, but also serious money. Use an equity platform if your business is already off the ground and you need capital to expand.
CircleUp
Use it if: You have an established consumer-product company and you’re looking to fund a new project.
But watch out for: A rigorous screening process makes getting a listing tough; CircleUp says it accepts fewer than 3 percent of companies that apply.
Total funds raised since founded (2012): More than $100 million
Total funds raised in 2014: $40 million
Founders: Private equity executive Ryan Caldbeck and Rory Eakin, who wanted to provide financing to fast-growing businesses too small to interest traditional private equity firms.
Known for Cutting-edge food, clothing, and other consumer goods. Companies with at least $500,000 in annual revenue can apply to be listed for CircleUp’s network of accredited investors–which could also get your product in front of CircleUp partners Procter & Gamble and General Mills.
Pricing: Commission, typically around 5 percent of the total amount successfully raised.
AngelList
Use it if: “You pretty much need to list here” if you’re expanding, especially tech companies, says Richard Swart, a crowdfunding researcher with the University of California, Berkeley. AngelList now boasts 200,000 startups and 30,000 investors.
But watch out for: If you’re considering this as an alternative to traditional venture funding, be aware that most crowdfunding investors won’t take board seats or active mentoring roles, Swart warns.
Total funds raised since syndicates launched (2013): $153 million
Total funds raised in 2014: $104 million
Founders: Naval Ravikant and Babak Nivi, who started a precursor blog in 2007, launched AngelList in 2010, and introduced its group fundraising syndicates in 2013.
Known for: Helping along seed-stage tech companies.
Pricing: Free for companies; investors pay expenses plus 20 percent of the profits on their syndicate investments.
REWARDS: GET MONEY, GIVE SOMETHING (BUT NOT EQUITY)
The Kickstarter model, this is the most common platform for businesses or aspiring entrepreneurs. If you have a cool but complex tech product, then a rewards-based site can help you test the market, presell goods, and drum up some buzz. But be careful–some of these venues let you keep the money only if you meet your fundraising goal.
Indiegogo
Use it if: You want to keep the money you raise even if you don’t meet your goal, or you have a social component to your business.
But watch out for: If you’re preselling an item but don’t meet your goal, you may be on the hook to deliver products you can’t afford to make, U.C. Berkeley’s Swart warns.
Total funds raised since founded (2008): More than $500 million
Total funds raised in 2014: More than $223 million
Founders: Former investment banker Danae Ringelmann with consultants Slava Rubin and Eric Schell, who wanted to raise money for arts projects and cancer research.
Known for: Creativity plus charity. High-profile campaigns include film and tech ventures; and unlike Kickstarter, it allows charitable projects.
Pricing: 8 to 10 percent.
Kickstarter
Use it if: You have a cool technology product or arts project to test on the crowd.
But watch out for: Sometimes backers change their minds between the time they pledge to support you and when you meet your funding goal.
Total funds raised since founded (2009): More than $1.5 billion
Total funds raised in 2014: $444 million
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Founders: Perry Chen, Yancey Strickler, and Charles Adler, who spent years working on a way to pool money to fund arts events– eventually creating a site that’s synonymous with crowdfunding and the big money it can net.
Known for: Creative projects, especially films, games, and tech gadgets. No operating expenses for charities, and it allows you to keep your money only if you raise all of it.
Pricing: 8 to 10 percent of donations, including card fees.