How to Crowdfund for Business and Creative Projects

Crowdfunding is a powerful tool for small business owners, startups, and independent creatives to raise money to launch new projects, cover operational costs, and continue to grow. 

The secret sauce to building a successful crowdfunding campaign is community. Combining crowdfunding with a deep personal connection to your audience, customers, and clients can help you run a successful campaign and test product-market fit. 

Here’s what you need to know about crowdfunding, its pros and cons, and how to raise money for your next project.

What is crowdfunding? 

Crowdfunding is a way for people, brands, and organizations to mobilize their communities to help fund a business, initiative, cause, or project of any size. Crowdfunded projects come in all types and sizes, such as an app that makes food delivery easier, a new line of ethically produced t-shirts, or even something as small as a new piece of camera equipment or a limited print run for a zine.

Today, many people set up crowdfunding projects online through crowdfunding sites. Others choose to crowdfund on their own websites or social media profiles to have more ownership over the fundraising campaign and funds. These platforms help you to tap your community and similar-minded individuals to help build excitement and get your funding flowing.

4 types of crowdfunding

The four main types of crowdfunding are rewards-based, straightforward donations, peer-to-peer lending, equity-based. 

1. Rewards-based crowdfunding

This type of crowdfunding is similar to a preorder or loyalty system. Funders visit your donation page and pledge a certain amount of money in exchange for a reward related to your project. 

For example, if you’re fundraising to launch a new mobile food delivery app, a $50 donation might get someone a reward of 20% off their first order. Or maybe you’re fundraising to open a new restaurant—a $100 donation could receive guaranteed reservations during opening month, and a $10,000 donation might reward food and drink credits on every visit for the first six months.

Rewards entice people to donate by making them feel like they are getting value in return for their support. They’re also an effective way of testing which product features resonate most with your audience and which fall flat.

2. Straightforward donations

Many supporters are happy to fund a project without receiving a reward or return because they believe in your mission and want to support it. While donations are commonly associated with nonprofit organizations or causes, they also apply to startups, new products, events, and most scenarios related to crowdfunding. 

If you’re considering asking for straightforward donations, be authentic, direct, and transparent about how you plan to use the funds. Lean into your story so that donors feels good about contributing.

3. Peer-to-peer lending

Peer-to-peer lending is an alternative to a traditional bank loan. Instead of getting a single, large loan from a bank, you get smaller loans from your friends, community, or strangers you connect with on a lending platform. The lender still gets interest, but often at a lower rate than a bank.

These loans are generally best for newer startups, individuals with lower credit ratings, or businesses with outside-of-the-box ideas that don’t align with traditional bank loans.

4. Equity-based crowdfunding

Equity crowdfunding gives contributors a stake in your project. This method is ideal if you want to launch a business and lets the public acquire unlisted shares. These shares aren’t available on the stock market, they’re stakes that a limited number of individuals own and can be traded outside of a formal exchange. 

Equity funding is ideal when you need to raise large contributions. To ensure this method is ethical, it’s often subject to government monitoring and regulation to control how much money can be raised and invested.

Read our guide to asking for donations

Pros and cons of crowdfunding

Like any type of fundraising, crowdfunding comes with a range of benefits and potential obstacles. The following list of pros and cons should help you determine if it’s right for your project.

Pros of crowdfunding

Crowdfunding is a good option if you have a supportive community to tap into, and can help you promote and test new concepts. 

• Engage your community: Crowdfunding helps you mobilize your community and their networks to amplify and fund your project.

• Testing: Use crowdfunding to test messaging, marketing, and new product ideas and  see what resonates before your project or product goes live.

• Marketing: You’re not only raising money, you’re also building awareness for your project. The people who help fund it now have a stake in its success and will likely help promote it. You’re building a team of supporters, advocates, and amplifiers.

• Independence and control: Unlike many types of traditional fundraising, crowdfunding can give you more control over your business, how you run it, and who has a say or stake in it.

• Build your audience organically: By helping finance your project, funders are showing you that they’re likely your target audience and you can use them to inform a contact, newsletter subscriber, or customer list down the line. 

• Press and storytelling: Crowdfunding creates an opportunity to amplify your product story to a larger audience. Even if someone decides not to contribute to funding, they might help get press for your story or spread the word in other ways.

Cons of crowdfunding 

One of the biggest challenges of crowdfunding is that it’s not a set-it-and-forget-it fundraising method. You’ll need to promote your project regularly, provide updates, and have the bandwidth to support campaign rewards afterward.

• More competition: Crowdfunding makes fundraising widely accessible, so you’ll need to stand out. Build a proposal that appeals to your community and emphasizes the value and story behind your goal.

• Risk of not hitting goals: It’s possible that you’ll fall short of your fundraising goal. Make sure you have a plan on how to proceed, like where you’ll find the remaining funds or how you’ll refund supporters. Some platforms will only transfer funds to you if you meet your goal, so you won’t have to worry about refunds. 

• High volume of work and preparation: Allocate the right resources to building a compelling campaign and marketing it to the right people. Remember that you’ll also want to provide updates and dedicate resources to fulfilling any rewards.

How to set up a successful crowdfunding campaign

If you want to give crowdfunding a try, some upfront research and preparation will help you run a smooth and successful campaign. Don’t be afraid to start small and add stretch goals as you go, or adapt strategies if you’re not getting the results you want.

1. Set your goals, budget, and type of crowdfunding 

Before setting up your crowdfunding campaign, zero in on what you hope to accomplish. Are you aiming to fund your entire project or just a part of it? Establishing specific and achievable goals will help you communicate a clear finish line and milestones for your fundraiser, which encourages people to support you. That will also help you determine how much you need to raise to make that goal a reality.

From there, you can decide how much you want to crowdfund. Some people might only raise part of what they need from crowdfunding, while others might use crowdfunding to cover all costs. What’s realistic depends on your full budget and community. 

Finally, choose which type of crowdfunding to use. Pick the method best suited for your target audience and the size of your crowdfunding goal. For example, equity funding might make sense for a new business, but donation or rewards-based methods will be a better fit for most smaller projects.

2. Choose a crowdfunding platform

Be honest and practical about your project’s needs and select the platform best equipped to meet them. Consider how you plan to reach your audience, where you’ll direct them to contribute, and how rules around fundraising work on different platforms.

For example, you can add a Donation block to a Squarespace website to raise money toward any goal. This gives you creative control over the donation page and messaging. Since it’s built into your website, visitors can also explore to get to know your brand and story better. 

If your audience primarily finds you through social media, you could consider adding a crowdfunding campaign to the link in bio page on your social profiles. Bio Sites has an option to raise money directly from your link in bio, but you could also direct people to your website donation page from there.

With many platforms, crowdfunding is all or nothing: At the beginning of the campaign, you set the minimum amount of money you need to fund the project, and if you reach it, your project gets funded. Some platforms, like Squarespace and Bio Sites, allow you to get funding from anyone who pledges. You may also be able to extend the deadline if you don’t meet it. Make sure this is all clear before you get started.

3. Make a marketing and promotion plan

A solid marketing plan ensures the right people learn about your project, help fund it, and spread the word. First, identify your target audience and what resonates with them. Then, develop a story around what makes your project stand out. What problem does it solve and how? What value does it provide to your audience? 

Once you lock in your messaging, build a promotional plan. Research where you can best reach your audience. Are they active on social media? If so, what platforms? Do you have an email newsletter? If so, it’s time to use it. Who are potential amplifiers and how can you reach them to help spread the word?

4. Engage with your supporters and keep them updated

Staying in touch with supporters is not only the right thing to do, it helps retain their support. Keeping supporters updated makes them feel like part of your journey and helps to assure them that their money is being put to good use. 

This can be as simple as sending a newsletter with funding and project updates. If you have the time, you could run an occasional video call or Q&A session. Throughout the process, be sure to express your gratitude.

5. End the campaign and fulfill rewards

Crowdfunding campaigns generally last around 30 days. In most cases, your crowdfunding platform will arrange the payments from investors to you.

For equity-based crowdfunding, the platform will generally arrange share certificates or convertible notes for your investors.  

If you choose to do rewards-based crowdfunding, it’s time to fulfill them. Make a plan from the start about how you’ll follow up and distribute rewards, and proactively communicate with supporters about timelines for receipt.

Don’t forget to factor in any processing or administration fees you may incur from your platform, and make sure you’re on top of any tax implications so they don’t creep up on you during tax season.

Stay in touch with your supporters

Launching a crowdfunding campaign isn’t a one-and-done deal. Whether you’re using it to fund a new business or just a one-off project, it’s a best practice to stay in touch with your supporters afterward. 

Start with an update on what your crowdfunding campaign achieved and how you’re using the funds. From there, you can continue to send business updates. Building and maintaining these relationships can lead to continued rounds of funding for future projects or products and can also help sustain a community of people who will support your business and ensure it continues to grow.