How Does Crowdfunding Work

Crowdfunding Fundamentals with Social For Action

In this blog, We’ll explain what is crowdfunding and how does it work, the different types of campaigns and platforms and additional crowdfunding basics. Interested in crowdfunding for nonprofits, raising money for your movie or product on Social For Action, or for your company on Social For Action? This guide is for you.

How Does Crowdfunding Work?

At a basic level, crowdfunding is lots of people – the crowd – putting in money to support a project. It could be for something as diverse as a trip to a sports competition or to raise money for a medical emergency. In some cases, the funders do so as an altruistic donation, while in other cases, they get rewards, equity in the company who raised the money, and more.

In most crowdfunding campaigns on Social For Action, you will see a goal amount, which is how much money you want to raise, how much money has been raised so far (you will see a visual indication like a progress bar and a number in most cases), how many people backed the crowdfunding campaign and how much time is left for the campaign.

The main risks of crowdfunding varies between the different types of crowdfunding campaigns, but are generally two.

1. The crowdfunder won’t use the money for the purpose it was raised (a scam of some sort).
2. The crowdfunder won’t be able to provide the perks/rewards on time, or ever, for various reasons.

These are not common at all, and therefore get more attention on the media.

Types of crowdfunding platforms

There are four (4) types of crowdfunding platforms that are generally categorized by what the backers get in return for their money.

• Reward based crowdfunding
• Donation based crowdfunding
• Equity based crowdfunding
• Lending Based Crowdfunding

In India, we do more of donation based crowdfuding – people who back these kinds of campaigns are more donors than backers. They do it for the cause, to raise money for a sick person, or to save animals. This is crowdfunding for nonprofits. Most donation-based campaigns are flexible campaigns. You’ll find such campaigns on platforms like Social For Action which also offers the flexible model.

4 Steps To Start Your Own Crowdfunding Campaign On Social For Action

Got a project you need funds for? Or a plan to expand your business? Perhaps it’s time to turn that food truck idea into a fleet of trucks.

Step 1. Select Your Platform

 Start by choosing between a good donation – based platform. Find out how long the different platforms allow campaigns to run. That can be important. What’s the limit on how much you can raise? And find out who will see it. Certain platforms might attract different types of backers.

Step 2. Get Accepted By The Platform

Fill in the online forms and provide any documentation needed. The platforms need to check you’re legitimate.

Step 3. Make Your Pitch

Once accepted by the platform, you have a place to make your pitch. Describe your project or idea, why you want funds, and how much you’re hoping to raise. If it’s a rewards-based platform, list what backers will get. The pitch phase can require a lot of work. It’s a full-on marketing campaign to promote your project or business and make it attractive to investors. And it may involve frequent updates to keep the interest going. Your business needs to use its customers and fans on social media channels to get the word out.

Step 4. Campaign End

With some social crowdfunding platforms you get all the donations raised during the campaign. With others, you have to set a target and only get the cash if you reach it. If you’re successful, the platform arranges the payment of the funds to you and issues share certificates. These platforms make their money through fees – for instance a percentage of the amount raised plus transaction fees. Some won’t charge a fee unless you’re successful. They’re doing a lot of the administration and handling the legal compliance that can be complex to do on your own.