Reward Crowdfunding platforms like Kickstarter, Indiegogo and Crowdfunder all charge a percentage fee of the amount raised, which typically range from 5 – 9%.
You have a project in mind, you create the campaign, you attract a crowd of backers and the payment processor (usually Stripe, Paypal or GoCardless) transfers the funds. So what service are these platforms providing for their fee? Is this too much to pay for a ‘place’ online for this to happen? And what are your other options if you want to raise funds through pre-selling?
Let me start by dispelling some myths about Reward crowdfunding:
The platform supplies the crowd
One of the biggest misconceptions about crowdfunding is that, simply by putting your genius idea up on the internet, legions of bored netizens waiting on the crowdfunding site will fund you. This is not how crowdfunding works. You have to prepare your own crowd for funding and bring that crowd to the platform. There are an abundance of failed campaigns that never took off on these sites because these campaigns relied on the hosting platform to do the work for them, instead of going out themselves and asking for funds from their networks.
You need a platform to crowdfund
The second falsehood surrounding this form of crowdfunding is the idea that you need a platform to host your campaign. Reward crowdfunding isn’t regulated in the same way as equity and P2P lending, both requiring expensive and time consuming HMRC authorisation. You can get your own ‘Out-the-box’ solution with something like Ignition Deck. That, by the way, is how we started.
It was a clunky, difficult thing to get working, and the support was awful, but it worked. Until these products improve as the market matures, I’d say you’re better off using an existing platform rather than having that hassle, especially if there is no tech expertise in the business. But the key question is why is there a market for ‘Out the Box’ software?
This is good evidence of Myth 1. You supply the crowd therefore it doesn’t really matter where your campaign is hosted. You could do as Brewdog did for Equity crowdfunding, Rhino Rugby bonds did with lending and the MYO gesture wrist band have done with reward crowdfunding; you could crowdfund on your own site.
The percentage fee structure represents value added
The percentage fee structure works when someone is giving you access to a network. Take for instance, equity crowdfunding. An equity platform will have a crowd of investors perpetually on the look out for opportunities. The platform acts as the gatekeeper to that group. If you want to pitch to them, and you are successful, they’ll take a cut.
It works because it is their network, they are giving you access, and they will also be giving the investors a screening service, making sure they don’t see any projects that are wasting their time. In essence, they’re adding value to both campaign creators and investors, so the percentage fee model makes sense for equity crowdfunding.
With reward crowdfunding, however, you are being given access to no such network. In reality, you are bringing your network and your customers to the platform. The platform usually isn’t screening projects either, so they aren’t providing a service for the contributors. Where is the added value?
Essentially this blog sets out to make one point. You are responsible for preparing and building your own crowd for crowdfunding.
It is for that reason, at Crowdfund Campus, we don’t believe in success fees/campaign fees and why we are pioneering with a different business model. One where the campaign creator keeps everything they earn (after payment processing fees).
Our model means we can spend more time with our campaign creators, giving them the skills and knowledge to run a successful crowdfunding campaign and build their own crowd. That is how we add value and that’s why 70% of campaigns have successfully hit their targets on our platform. If you are connected to one of our member institutions then start your campaign today and book your FREE online crowdfunding workshops at http://crowdfundcampus.com/workshops
Don’t lose out to success fees on other platforms and get #FundedOnCampus
Follow the blog at https://crowdfundcampus.com/blog for great crowdfunding insight.
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