Crowdfunding is a way to raise funds for a project or your business using special Internet platforms. Money can be borrowed, exchanged for a share of your future profits, or even received free of charge. In all cases, they are issued not by the bank or the state, but by other people or companies. Understanding how collective funding works and who can raise money through crowdfunding.
The whole crowdfunding process can be broken down into several steps.
Step 1. Formulate the purpose of your project
Do you want to launch a social project, start producing an innovative product, or expand an existing business? Depending on the purpose, you can determine which type of crowdfunding is best for you.
If your business is already working well and you urgently need money for a short period of time, then crowdfunding is for you . People and other companies will be able to lend you money for a couple of months or even a couple of days.
If you are planning to start a new business project or develop your own business and want to attract professional investors, you should pay attention to crowdinvesting. Options are possible here: investors can invest in the business in exchange for a share in the business or securities of your company.
If you dream of implementing a social or creative project, then you can do this through crowdfunding with non-financial rewards or charity crowdfunding.
Non-financial reward crowdfunding involves raising money in exchange for a product or service. For example, if you are raising money to publish a book, you can offer the investor a copy of your publication.
Charitable crowdfunding does not imply any reward - money is donated free of charge. Many successful social projects (for example, raising money for nannies for orphans) receive funding through crowdfunding.
Step 2. Choose a method of project financing
So that you can choose the most suitable financing for your project, we will tell you more about each of the types of raising money:
Crowdlanding
Crowdinvesting
Crowdfunding
Crowdlanding
In fact, this is an opportunity to get a loan, but the money will not be lent by a bank, microfinance organization or credit consumer cooperative, but by other people or non-financial companies. Hundreds and thousands of Internet users lend to projects through a special site - a crowdfunding platform.
Loans are issued at interest, and they will be higher than in a bank: the average rate is 25% per annum. But there are a minimum of formalities: you can leave an application in the morning, and get the money in the evening. This type of lending is convenient for short-term financing - if the money is needed for several days or months.
Who can get it?
It is easiest to get such a loan for a business that:
How to get?
You need:
There is a special kind of crowdfunding - streaming funding. This technology assumes that the site collects, on the one hand, several enterprises (investment pool) that want to borrow money, and on the other hand, a group of investors who are ready to lend this money at interest.
In this case, the site plays the role of an active intermediary:
Crowdinvesting
This is also a way to finance a business. On a special platform on the Internet, business and investors find each other. Investors can finance an entrepreneur in exchange for a stake in his business or securities in his company. In this case, the site helps to issue shares that certify the investor's right to a stake in the company.
This method of financing is not suitable for any organization - the time of its existence, and turnover, and investment attractiveness are important here. The site has analysts who carefully study the company's documents (financial and management reporting), assess its prospects and decide whether to admit it to fundraising.
And yet, crowdinvesting platforms have less stringent requirements for companies than banks. Financing can be received even by those companies that do not yet have a credit history or whose business plan does not seem convincing to the banks.
Who can get it?
A business that:
How to get a?
You need:
Crowdfunding
The most famous type of crowdfunding, which you probably heard about, is fundraising for a creative project (recording an album, shooting a film, publishing a book) or a business that is useful for people (production of ethnic clothes or keyboards from Siberian cedar). An organization or just a person can collect money.
Everyone who donated money will receive in gratitude the result of your project: for example, a book, autographed CD or other unique product.
Crowdfunding with non-financial rewards is actively used not only by novice creators and creative businessmen, but also by real stars. For example, musician Boris Grebenshchikov successfully raised money for an album, and animation director Harry Bardin - for a new cartoon.
Charity crowdfunding implies that people donate money just like that and do not expect any reward.
Who can get it?
Such crowdfunding works successfully for creative and social projects. And also for small business projects - for example, an author's mini-bakery or a creative studio.
The most popular fundraising categories in Russia are music, books and movies; in Europe and America - biotechnology, medicine and robotics.
It can be another business - the main thing is that its owners can convincingly and engagingly tell about their plans and prospects. And if your idea is not charity, you will have to offer investors some bonuses. People are ready to support unique, vibrant projects, but not only for the love of art. Many expect something in return for the money they contribute.
A small publisher is collecting money online for a new book. Everyone who contributes money will receive a copy. Moreover, when the book already appears in stores, it will cost more, that is, people pre-order at a bargain price. Reward options: you deposit $ 10 - you get a book, you deposit $ 20 - you get a book autographed by the author, you deposit $ 100 - a book and a set of unique handmade postcards, $ 300 - and your name is mentioned in the book, the publishing house thanks you.
How to receive the money?
Through special platforms. Everything there is tailored so that you collect the amount, and the curator will help you to correctly draw up the project, point out the shortcomings and recommend how to fix them. There is already an audience there that follows the emergence of new interesting projects and is ready to support them. Please note: the site takes a commission for its services - 3-15% of the total amount.
What happens if you fail to collect the required amount?
Different sites have different conditions for this case. For example:
How to Run a Successful Crowdfunding Campaign
1. Look at your idea from the outside
Assess your project soberly. Who is it for? Why is it interesting? Would you support him yourself? These questions will help you figure out if crowdfunding is really right for you. Maybe crowdinvesting is right for you, or maybe you need to go for a subsidy.
2. Estimate your resources
Consider if you can do it yourself or if you need a team. You have to not only bring your idea to life, but also come up with a promotion strategy, communicate with investors, and then send people goods (CDs, books or the result of your production). If there are 10 of them, it is not too laborious. And if 500?
3. Consider all expenses
Calculate as accurately as possible how much money is needed for the implementation and marketing promotion of the project. Include shipping charges, if applicable. Depending on the weight, quantity and destination of the parcels, this amount can be very small or very impressive. And then add the crowdfunding platform fees, money transfer costs, and taxes to the total.
4. Come up with a reward
To make people want to invest in your project, do not skimp on rewards. People love creativity, generosity, partnerships with other interesting and thematically related companies - for example, when a legendary fountain pen comes with a calligraphy book.
5. Tell a story
Why do you need money? Better not just dryly state your idea, but tell an interesting story. Then people will support you.
6. Communicate with investors
When the fundraising begins, do not sit idly by. Connect with potential investors online and offline. Share the news and look for reasons to remind yourself. Maintain interest in you and your project throughout the campaign.
And remember the statistics: if in the first week the project collected 25% of the required amount, then, most likely, it will be possible to collect it completely.
Step 3. Select a site
Whichever of these methods you choose to fund your project, you will have to work with an intermediary site where potential investors meet with someone who needs money. And in order not to face scammers, you need to carefully assess your future partner.
Be sure to find out:
Carefully study the contract that you are going to conclude with the site. Check with a lawyer if necessary.
If in doubt, don't risk it, look for another intermediary to finance the project.
If the site looks reliable, find out the terms of the partnership:
Step 4. Start collecting money
Sign a contract with the selected site. Register on it and create an account. Provide the site with all the necessary documents. Present your project on the site. Provide marketing support while raising money.
Step 5. Pay off investors and pay taxes
The money that you can raise as a result of crowdfunding is considered income - and you need to pay tax on it. The type and amount of tax depends on who receives the money.
The whole crowdfunding process can be broken down into several steps.
Step 1. Formulate the purpose of your project
Do you want to launch a social project, start producing an innovative product, or expand an existing business? Depending on the purpose, you can determine which type of crowdfunding is best for you.
If your business is already working well and you urgently need money for a short period of time, then crowdfunding is for you . People and other companies will be able to lend you money for a couple of months or even a couple of days.
If you are planning to start a new business project or develop your own business and want to attract professional investors, you should pay attention to crowdinvesting. Options are possible here: investors can invest in the business in exchange for a share in the business or securities of your company.
If you dream of implementing a social or creative project, then you can do this through crowdfunding with non-financial rewards or charity crowdfunding.
Non-financial reward crowdfunding involves raising money in exchange for a product or service. For example, if you are raising money to publish a book, you can offer the investor a copy of your publication.
Charitable crowdfunding does not imply any reward - money is donated free of charge. Many successful social projects (for example, raising money for nannies for orphans) receive funding through crowdfunding.
Step 2. Choose a method of project financing
So that you can choose the most suitable financing for your project, we will tell you more about each of the types of raising money:
Crowdlanding
Crowdinvesting
Crowdfunding
Crowdlanding
In fact, this is an opportunity to get a loan, but the money will not be lent by a bank, microfinance organization or credit consumer cooperative, but by other people or non-financial companies. Hundreds and thousands of Internet users lend to projects through a special site - a crowdfunding platform.
Loans are issued at interest, and they will be higher than in a bank: the average rate is 25% per annum. But there are a minimum of formalities: you can leave an application in the morning, and get the money in the evening. This type of lending is convenient for short-term financing - if the money is needed for several days or months.
Who can get it?
It is easiest to get such a loan for a business that:
- officially registered (as an individual entrepreneur or legal entity);
- has existed for at least 10-12 months;
- has a turnover in a bank account (money is regularly transferred to the account);
- he has a good credit history.
How to get?
You need:
- register on a crowdfunding site;
- provide the site with a bank statement, go through small checks;
- sign a loan agreement online;
- wait for the receipt of the required amount.
There is a special kind of crowdfunding - streaming funding. This technology assumes that the site collects, on the one hand, several enterprises (investment pool) that want to borrow money, and on the other hand, a group of investors who are ready to lend this money at interest.
In this case, the site plays the role of an active intermediary:
- chooses, according to certain criteria, which enterprises to include in the investment pool;
- evaluates potential investors;
- interacts with both parties on debt and interest payments;
- controls the payment of taxes.
Crowdinvesting
This is also a way to finance a business. On a special platform on the Internet, business and investors find each other. Investors can finance an entrepreneur in exchange for a stake in his business or securities in his company. In this case, the site helps to issue shares that certify the investor's right to a stake in the company.
This method of financing is not suitable for any organization - the time of its existence, and turnover, and investment attractiveness are important here. The site has analysts who carefully study the company's documents (financial and management reporting), assess its prospects and decide whether to admit it to fundraising.
And yet, crowdinvesting platforms have less stringent requirements for companies than banks. Financing can be received even by those companies that do not yet have a credit history or whose business plan does not seem convincing to the banks.
Who can get it?
A business that:
- officially registered (as an individual entrepreneur or legal entity);
- exists for at least a year;
- has a significant turnover on the account (if the turnover exceeds 50-60 million per year, then the chances of getting financing will be higher);
- has investment attractiveness, potential and a strategy for growth in turnover (this will be appreciated by site analysts);
- business owners have a good credit history, they did not participate in gray schemes.
How to get a?
You need:
- register on a crowdinvesting platform, fill out an application, provide information about the company and its activities;
- call the manager and get preliminary approval for financing;
- sign an agreement with the site;
- send financial and management reports to the manager;
- fill out a profile on the website, which will contain information about your company for investors;
- agree on an investment memorandum - a document that will be shown to potential investors. It contains everything about the company: idea, business model, risks. The site will draw up an investment memorandum with you;
- meet with investors in person or online;
- get money into the account. This can take up to 30 days and sometimes longer. The term depends on the amount of the amount, the method of financing and other factors.
Crowdfunding
The most famous type of crowdfunding, which you probably heard about, is fundraising for a creative project (recording an album, shooting a film, publishing a book) or a business that is useful for people (production of ethnic clothes or keyboards from Siberian cedar). An organization or just a person can collect money.
Everyone who donated money will receive in gratitude the result of your project: for example, a book, autographed CD or other unique product.
Crowdfunding with non-financial rewards is actively used not only by novice creators and creative businessmen, but also by real stars. For example, musician Boris Grebenshchikov successfully raised money for an album, and animation director Harry Bardin - for a new cartoon.
Charity crowdfunding implies that people donate money just like that and do not expect any reward.
Who can get it?
Such crowdfunding works successfully for creative and social projects. And also for small business projects - for example, an author's mini-bakery or a creative studio.
The most popular fundraising categories in Russia are music, books and movies; in Europe and America - biotechnology, medicine and robotics.
It can be another business - the main thing is that its owners can convincingly and engagingly tell about their plans and prospects. And if your idea is not charity, you will have to offer investors some bonuses. People are ready to support unique, vibrant projects, but not only for the love of art. Many expect something in return for the money they contribute.
A small publisher is collecting money online for a new book. Everyone who contributes money will receive a copy. Moreover, when the book already appears in stores, it will cost more, that is, people pre-order at a bargain price. Reward options: you deposit $ 10 - you get a book, you deposit $ 20 - you get a book autographed by the author, you deposit $ 100 - a book and a set of unique handmade postcards, $ 300 - and your name is mentioned in the book, the publishing house thanks you.
How to receive the money?
Through special platforms. Everything there is tailored so that you collect the amount, and the curator will help you to correctly draw up the project, point out the shortcomings and recommend how to fix them. There is already an audience there that follows the emergence of new interesting projects and is ready to support them. Please note: the site takes a commission for its services - 3-15% of the total amount.
What happens if you fail to collect the required amount?
Different sites have different conditions for this case. For example:
- all or nothing. If you do not collect the required amount by the scheduled date, all the money will be returned to the investors. Good news: according to the rules of many sites, the project can be extended, that is, the date X can be shifted;
- not less than 50%. There are sites where you need to collect at least 50% (and the commission will be higher than if you collected the entire amount);
- collected as much as they could. The site allows you to pick up any collected amount, but you need to understand whether this makes sense, whether you can do what you intended with this money. After all, you must not only implement your idea, but also send a reward to investors, albeit a few;
- collect until we collect. As a rule, such a mechanism is suitable for social and charitable projects - for example, the construction of a new building for a dog shelter: there is no date X, money is collected until the required amount is accumulated, even for years.
How to Run a Successful Crowdfunding Campaign
1. Look at your idea from the outside
Assess your project soberly. Who is it for? Why is it interesting? Would you support him yourself? These questions will help you figure out if crowdfunding is really right for you. Maybe crowdinvesting is right for you, or maybe you need to go for a subsidy.
2. Estimate your resources
Consider if you can do it yourself or if you need a team. You have to not only bring your idea to life, but also come up with a promotion strategy, communicate with investors, and then send people goods (CDs, books or the result of your production). If there are 10 of them, it is not too laborious. And if 500?
3. Consider all expenses
Calculate as accurately as possible how much money is needed for the implementation and marketing promotion of the project. Include shipping charges, if applicable. Depending on the weight, quantity and destination of the parcels, this amount can be very small or very impressive. And then add the crowdfunding platform fees, money transfer costs, and taxes to the total.
4. Come up with a reward
To make people want to invest in your project, do not skimp on rewards. People love creativity, generosity, partnerships with other interesting and thematically related companies - for example, when a legendary fountain pen comes with a calligraphy book.
5. Tell a story
Why do you need money? Better not just dryly state your idea, but tell an interesting story. Then people will support you.
6. Communicate with investors
When the fundraising begins, do not sit idly by. Connect with potential investors online and offline. Share the news and look for reasons to remind yourself. Maintain interest in you and your project throughout the campaign.
And remember the statistics: if in the first week the project collected 25% of the required amount, then, most likely, it will be possible to collect it completely.
Step 3. Select a site
Whichever of these methods you choose to fund your project, you will have to work with an intermediary site where potential investors meet with someone who needs money. And in order not to face scammers, you need to carefully assess your future partner.
Be sure to find out:
- how long this site has existed;
- how many successful projects she has implemented;
- how many investors are raising money right now;
- what are the reviews about it on the net.
Carefully study the contract that you are going to conclude with the site. Check with a lawyer if necessary.
If in doubt, don't risk it, look for another intermediary to finance the project.
If the site looks reliable, find out the terms of the partnership:
- what documents need to be provided to start the project;
- will the site help to make a description of the project for investors;
- what percentage of the attracted money the site takes for its services;
- whether you will need to pay a separate commission for transferring money to your bank account or it is included in the total commission percentage of the site;
- Is there a time limit for raising money for the project; what will happen if you do not meet this deadline;
- will the site help to calculate and pay taxes.
Step 4. Start collecting money
Sign a contract with the selected site. Register on it and create an account. Provide the site with all the necessary documents. Present your project on the site. Provide marketing support while raising money.
Step 5. Pay off investors and pay taxes
The money that you can raise as a result of crowdfunding is considered income - and you need to pay tax on it. The type and amount of tax depends on who receives the money.
- An individual pays personal income tax (PIT) on the entire amount of money raised.
- An individual entrepreneur or legal entity pays income tax in accordance with the selected taxation system.
- A non-profit organization can arrange a fundraiser as a donation. The tax will depend on the accounting system that operates in this non-profit organization.
