What Is Crowdfunding and How Does It Work in 2023: General Overview
Over the last few years, crowdfunding has become a serious alternative source of financing for companies, associations, and individuals. And people are asking how to start a crowdfunding site more and more. Let’s figure it out.
What Is a Crowdfunding App?
Before we get down to how to create a crowdfunding website, we need to define what crowdfunding itself is.
Crowdfunding is a term that designates participatory financing or literally financing from a crowd. It is mainly carried out online and there are three forms.
The most well-known is the donation. It can be done with or without a reward. In general, the reward is rather symbolic (a mention of your name on the site, a T-shirt with the logo of the company, etc.).
The donation is recommended to test your product or service on the market and to know the public’s opinion. It also allows you to create a leverage effect on other financings (bank loans, grants, etc.).
The second form of crowdfunding is crowdinvesting (or investment). It is a participation in the company in the form of capital, bonds, or royalties. It is more commonly referred to as crowd equity because the majority of the amounts raised are in equity.
Crowdinvesting is useful to finance the development of an innovative project or one that is not very popular with traditional investors. In some cases, equity investment entities investors to tax benefits.
The third form of crowdfunding is crowdlending (or participatory loan) with or without interest. The loan allows, in general, the ability to finance expenses not taken into account by banks or intangible investment projects. However, the company must be in existence for at least two years to be eligible, especially for interest-bearing loans. The amount of the loan disbursed is limited by the laws of the startup’s country.
How Does Crowdfunding Work?
The principle of a crowdfunding campaign is simple. The project manager opens an account on the platform that suits them best. It specifies the funding method (if the platform offers several) and the desired amount. The campaign cannot last indefinitely, so the platform limits the maximum duration of the campaign. The sponsor must also open an account on the platform.
If the requested amount has been reached at the end of the campaign period, the sponsor’s account is debited and the project manager receives the funds. The platform then takes a commission on the amount raised (usually 5% to 12%) if the goal is reached.
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How to Start a Crowdfunding Website in 2023: Step-by-Step Guide
Step 1: Conduct a product discovery and understand how competitors work
How to start a crowdfunding website? First of all, a successful crowdfunding campaign should be prepared at least 6 months in advance and follow a clear schedule. Analysis of other platforms is the most important. It helps you understand how they set up a crowdfunding website.
They are not all created with the same features, and it is important to carefully analyze the pros and cons. Before you start, we recommend that you make a comparison of crowdfunding platforms based on three criteria:
Proposed types of financing
The choice of funding type is a natural selection criterion. Indeed, there are 3 types of equity funding: donation, investment, and loan; and crowdfunding platforms usually offer only one or two types of funding.
The success rate of the platform
The second criterion to consider when starting a crowdfunding website is the success rate of the platform: out of the 100 crowdfunding campaigns launched on the platform, how many are successful in reaching their funding goal, and why are they successful?
Rather than focusing on the platform’s overall success, we recommend that you refine your analysis by considering only projects similar to yours in terms of both the business sector and funding size.
The final criterion is the audience of the crowdfunding website. The audience is vital because the success of your campaign depends directly on your ability to get people talking about you to attract as many participants as possible.
We recommend that you analyze your audience based on three criteria: the number of active participants on the crowdfunding website, the number of Facebook followers, and the number of Twitter followers.
Product discovery is also a very important step. Product discovery is an invaluable process for product teams, helping them refine their ideas and identify the most effective solutions to user problems.
It reduces uncertainty when making decisions by providing comprehensive data about users’ needs and allows companies to build tailored products that meet those demands.
By conducting regular product discovery activities- such as surveys or interviews – businesses can gain deep insights into how they should focus development efforts, reducing risk while avoiding costly misalignment between customer expectations and end results.
Step 2: Choose the type, method of monetization, and target audience
Once you have completed the competitor analysis and product discovery, you can choose the optimal crowdfunding business model to start a crowdfunding website. In other words, the way your crowdfunding website will raise money from investors and on what terms. Such models can be roughly divided into three types:
Donators participate in crowdfunding campaigns without expecting any return. It is suitable for charitable and relatively small projects, when people chip in a few dollars each for initiatives they like.
A variation of the donation model, only in this case, investors receive a predetermined reward. The reward can be anything from a mention on a blog to a finished product. Investors invest and get a stake in the business or at least a financial return on their investment. Reward-based is a good model for commercial initiatives.
This item directly means an investment in the shares of a commercial enterprise. That is, users who made a contribution equal to or greater than the value of one share become a shareholder of the enterprise (owner of securities). This approach gives the user the opportunity to make a profit if the company is successful. In addition, it is possible to trade your own stocks.
This type is essentially loans. Users lend money to the project at a certain percentage, and this percentage will be the investor’s profit.
Revenue models of crowdfunding platforms
Commission for the amount raised
The profitability of the crowdfunding platform depends on the amount collected by the startup. The platform receives money only if the crowdfunding fee is successfully closed. Most platforms use this method of generating income. For this income model to be profitable, the crowdfunding platform must receive a constant stream of new projects and investors.
Paid services and features on the website
The crowdfunding platform monetizes some of its services, such as marketing, campaign management, branding, prototyping, and promotion.
This is the easiest way to monetize. The profit comes from advertisements placed on the crowdfunding platform.
Managing and promoting existing campaigns on the crowdfunding platform can be a good way to monetize. Campaign owners will benefit from always being visible in search results, and platforms will benefit through additional income.
In many ways, the crowdfunding project’s success depends on whether a community has been formed around the creator. By and large, money comes from a very specific community, so every good project should meet the needs of this community.
Before thinking of a plan for promoting your crowdfunding campaign, you need to compose a core target audience and use it as a basis for designing your project description and everything else.
Step 3: Turn your idea into a business plan and set a budget
The idea and then the goal must be evaluated objectively, and you must understand how to create a crowdfunding website. People, as a rule, are not interested in getting involved in a project they think will fail. We recommend simplifying the business plan.
It is better to gather a small community on a crowdfunding platform and, with them, implement a project that is not overly ambitious. Then, you can grow this community with, for example, newsletters on the platform, making larger fundraisers.
Financial planning should be the next step. Launching a crowdfunding campaign requires a real budget. The financing plan identifies the resources that the company needs to ensure that cash is “used,” and ensures that costs and results are balanced so that the company’s cash flow is always positive.
Producing a video presentation of the project, press releases, and digital content needed to promote your crowdfunding operation requires expected costs. In addition, there are platform costs and, depending on the type of funding desired, any legal or audit costs.
Step 4: Select the best design & web development vendor
When developing a successful crowdfunding campaign, the development team must set a clear goal – the crowdfunding website must be recognizable and focused on the target audience. When entering the crowdfunding platform’s page, the user should immediately understand what the site is aimed at and how to perform certain actions: register, launch a project, view a listing, and invest money.
If you are currently actively looking for a team of experts to help you build a crowdfunding website, contact us. At Rewisoft, 80% of designers and developers are middle and senior-level professionals. Our team is happy to transform your idea into a high-performing crowdfunding website.
Step 5: Start with the MVP of your idea
When you know exactly what kind of crowdfunding platform you want to create, you can start creating a minimum viable product (MVP).
The best way to do this is with the prototyping technique. It essentially takes the pains, desires, pleasures, preferences, and behavioral patterns of user characters and matches them with the platform’s functions being created.
A Minimum Viable Product presents an ideal opportunity for entrepreneurs to test the wants of their target customers quickly. Start by clearly defining objectives and staying true to your initial scope; resist departures from or additions to the plan wherever possible.
Assemble a team you trust that can provide insightful ideas throughout development – this is essential in ensuring success with your MVP! Ultimately, constructing within budget without compromising on quality will set you up perfectly for assessing customer feedback down the line.
We already have a piece on our blog that fully explores the concept of MVP and its strategies. From there, you can get more useful information for your campaign.
Step 6: Create your crowdfunding website UI/UX design
When creating a crowdfunding website, focus on the target audience and develop the design and features specifically for it. However, make sure that the interface of the site remains familiar and understandable, otherwise, you will create a sense of discomfort for the visitor, and they will leave your site. Here are the basic principles of a good design:
A list of sections at the top, a traditional menu on the top right or left, a card-style listing, and a clean and minimalistic design.
A pleasing color scheme
A small number of colors that the user will associate with your niche and you through perceptual and direct associations.
The design should adjust to the resolution of the visitor’s device so that it fits their screen while keeping key information present.
It all starts with creating a wireframe. This approach will help you to work out every element that affects the user experience in the most detailed and precise way. You will be able to see how the user will interact with the platform. Work out the entire user’s path and make the platform as comfortable and ergonomic as possible.
There are two types of prototype wireframes:
- Low-fidelity prototypes are much faster to create and usually facilitate teamwork on a project. These can be sketches on paper or a whiteboard.
- High-fidelity prototypes feature more relevant content, specific font variations, and may contain more accurate information about image sizes and even button styles. In most projects at Rewisoft, we use this particular type.
This is followed by UX testing. And after that, the models and the first beta versions of the future product have already been created.
Step 7: Conduct user testing
After the first crowdfunding platform prototype is created, it must be tested: at first with the help of QA- and QC-specialists, and then with the help of real users, who will eliminate most errors and deficiencies. However, the approaches can be completely different.
For example, at Rewisoft, we use our own UX laboratory for user testing. We have formed a UX Lab where the testing process is based on real-world use. Special equipment tracks the tester’s eye movement while using a specific UX.
Then the system displays the information, and we can compare the data of real use and analytics. Thus, the test results are obtained as close as possible to real use. You can find out more detailed information about testing methods by contacting our specialists.
After eliminating problems and testing in actual conditions, the MVP can be launched or continue to develop. Both variants have their pros and cons. However, something to keep in mind is whether the market has low competition or if competitors will appear soon.
You should develop crowdfunding and launch it on the market as soon as possible, but if the market is full of competitors, then the product should be finished first.
Step 8: Start your crowdfunding website development
The most voluminous step of launching a crowdfunding platform is writing the site code, testing it, and deploying it. You can start crowdfunding design from scratch, which is long and expensive but gives you maximum control and allows you to create a really unique site. Or you can use templates and ready-made solutions on the Internet.
However, before you do anything, seek legal advice. Quite often, such activities require registration or a license from one of the government agencies, such as the SEC in the United States or the FCA in the United Kingdom.
Also, the services of lawyers are needed in order to properly draw up a user agreement and standard forms of contracts, which will govern the relationship between the parties to your platform.
Crowdfunding website development process is divided into several essential steps:
- Tech stack & documentation. Development team determines technologies that will be appropriate for the project. The team compiles technical documentation describing all features and functionality and the relationship between user roles.
- Software architecture plan. Developers create the basic structure of the product. On the back end, they choose whether it will be, for example, a monolith or microservices and choose the controllers and types of APIs they will use. On the front end, developers determine how the user interface will be implemented and schematically depict which parts of the product will interact with each other.
- Sprints planning. At this stage, the team determines the priority and sequence of features creation. This stage is critical because the entire product development plan is based on it.
- Infrastructure setup for testing + CI/CD to the test servers. DevOps set up the production-like environment for running the developed application on the cloud. The customer has access to it and can also test the product. The team configures the system so that all changes the team makes to the product automatically appear in this environment.
- Client and server development & QA. At this stage, client and server parts of the product are developed (development of UI components, API, etc.) and tested.
- Regression Testing. QA tests the entire product thoroughly. We fix bugs that may have appeared when we were adding new features and product components.
- Production Infrastructure setup + CI/CD to the prod servers. The development team creates a separate, more flexible and scalable environment on the cloud that is production-ready. They configure domains and the system so that all changes developers make to the product automatically appear in this environment.
At Rewisoft, we usually assign 2+ developers fully responsible for these development processes. All our developers are experienced and knowledgeable engineers who will help you develop a product that will exceed your expectations.
Step 9: Test and launch your crowdfunding website
The launch of your site should be a high-profile event, in other words, you have to make it happen. This will draw maximum attention to the crowdfunding website. To do this, you need to:
- Find authors of several interesting, worthwhile crowdfunding campaigns who will agree to use your platform for fundraising. Make sure that the first initiatives raise money as quickly as possible.
- Organize email marketing and social media campaigns in advance.
- Make discounts available to all projects at the startup.
Step 10: Start and build a full-size product
With a ready and successfully tested prototype, you can continue to develop the platform by adding all the basic functions, for example:
- Registration and authorization form;
- Detailed account management;
- Monetization and project management;
- Deposit and withdrawal functionality;
- Security system and technical support.
Rewisoft Experience in Building Crowdfunding Websites
Rewisoft team provides high-quality web development services for leading companies across a wide range of industries.
Our web development services include:
- Custom web application development services. We develop robust, progressive, scalable and secure web applications of any complexity.
- Full-stack development services. We provide our customers with technical documentation creation, front-end development, back-end development, full-stack development consulting, and full-stack development testing.
- Front-end development services. Our front-end developers create full-featured user-friendly interfaces, modernize legacy products, and maintain product support all the way through.
- Back-end development services. We offer mobile app back-end development, cloud back-end development, web app back-end development, API development and tech back-end audit.
- Web development outsourcing services. By choosing us to outsource web development services, you will get professional web developers who will create a product that fully meets your expectations and requirements.
- Web development consulting services. Our team can provide you with UI/UX design audit, tech stack consulting, UX testing in our in-house UX lab, technical documentation creation, and web strategy consulting.
Rewisoft team is experienced in designing and developing crowdfunding websites. We know how to create a great solution that will meet your needs and expectations.
One of our customers, FaceT, came to us with a clear idea of their platform. FaceT is a crowdfunding platform where users can look for investors and create their own startups. Our task was to create a non-standard and creative crowdfunding platform.
Our team created a unique and creative platform where users can create their projects and earn money. We helped the creative crowdfunding platform provide an opportunity for various talents to seek sponsors.
Another customer is IGIVit, a web app as a sort of crowdfunding platform.
IGIVit platform simplifies how donors give and follow donations. The main idea is restoring trust in charities with an app-based ecosystem, allowing for donors to follow funds’ usage and for charities to create and manage their campaigns with more transparency and accountability.
For IGIVit, we completed the entire cycle of web app design, and the client was satisfied with the solution we proposed.
Main Crowdfunding Website Challenges to Consider
If you want to know how to create a crowdfunding site, it’s important to consider the challenges you might face:
The most obvious reason for project creators to start crowdfunding websites is fundraising. And without the trust of sponsors, this is not possible. People need to know where their money is going and what’s being done with it.
A detailed and interesting campaign story will convince people to support your cause. While you might be eager to get the page up and running as soon as possible, it’s still important to take the time to write the best possible description.
Here are the most important questions the story should answer:
- Who is the beneficiary of your fundraiser? Explain honestly and completely who the beneficiary is and why that person, family, or organization deserves financial help. If the fundraiser is going in your favor, fearlessly explain who you are and why you need so much help from others.
- What is the main problem? Let donors know what problems you or the recipient is facing.
- When do you need funds? It is important to let supporters know when you need funds to communicate how urgent the campaign is.
- Why do you or the recipient need help? Explain why donations are needed. Explain in detail what you are going to do with the money that will be raised through this campaign.
- How can others help you? List in detail the costs you or the recipient need to pay. This information will help supporters understand the impact donations will have.
Since this is a lot of money, privacy and security will be vital to your crowdfunding website. And it’s worth starting with an SSL certificate. Now, for many reasons, an SSL certificate should be on every site, and it’s important to reiterate that any site associated with personal data, and even more so with money transfers, must work under a secure protocol.
In addition, a reliable way of verifying the identity of potential donors and ensuring KYC (Know Your Customer) requirements is required. You can find many similar solutions on the market that can be integrated into your site or used as an external source of information.
Also, you need a full-fledged support service that will deal not only with KYC but also with the resolution of disputes, typical problems, and user issues.
Complying with the law
Since the beginning of crowdfunding in its modern version, the governments of most countries have created a legal framework to regulate this new business and prevent any abuse. This is why an investment platform must receive its legal status.
The status gives the platform the right to raise more funds and invest in legal structures. In turn, they must communicate the risks associated with the proposed investments and conduct their activities transparently.
Before launching your online platform, it is important to know the crowdfunding regulations which are enforced by different governing bodies.
In particular, those in the US and UK have adapted well to this new reality. The Financial Conduct Authority (FCA) regulates equity-based and loan-based crowdfunding models for both offline and online investment transactions – these require its authorization before operation can begin.
Laws around capital requirements of backers, as well as a cooling off period between parties, stand alongside their core goal; ensuring protection from risk when fundraising through means of digital channels.
In the US, all crowdfunding operations must comply with SEC and FINRA laws through four main regulatory pathways: Regulation CF, A/A+, D, or S. These respective rulesets differ in regards to funding caps, investor requirements and paperwork obligations, ultimately allowing businesses of any size access to capital raising opportunities.
Meanwhile, Europe is undergoing a transition toward harmonized ECSPR regulations which will be mandated by November 10th, 2021 – guaranteeing fair play across EU nations when it comes to crowd-sources investments!
Website information architecture
Building the right information architecture is very important for crowdfunding websites. Information architecture is the foundation for the further creation of a high-performing and high-quality product.
Let’s draw a simple analogy with building a house. In order to build a solid building that will serve for many years or even centuries, an architectural plan is needed.
So it is with the site. Without a well-built information architecture, you most likely will not be able to create a great product. Information architecture is responsible for the relationship of content, the sequence of actions, logic, navigation, etc.
The problem is that the investment of funds by funders is made through online platforms. There is no personal contact between the owner of the funds and the owner of the idea. Only the information that is presented on the business project’s website is available.
Top Trends to Consider to Start a Crowdfunding Website
The stabilization of the global economy has brought about positive trends for crowdfunding. The trends presented by popular platforms allowed us to dwell in more detail on the three main trends observed in the market since the beginning of 2023, which will help us create a crowdfunding website:
The stabilization of the donation market
With a different structure, the trend that caught our attention in this philanthropy market is the constant innovation. The loss of market share in certain segments of the sector is notably compensated for by embedded micro-donation solutions, rounding up on payment terminals or payslips, or solutions to find outlets for young people who wish to get involved in this type of project but do not always have the appropriate financial means.
Real estate crowdfunding
Several platforms have decided to dedicate themselves solely to the financing of new constructions or the renovation projects of real estate development. This is called crowdfunding. Some also call this “crowdbuilding”. This is not a rental investment but an investment in a real estate program via financial securities.
The rental investment consists of buying real estate with several people and withdrawing returns on the rent from this same property.
This area remains the most dynamic sector of the economy and the driving force behind the growth of crowdfunding. It is still a product popular with investors who incorporate it into their savings diversification plan along with other types of investments.
Renewable energy is the second-largest growth sector for the crowdfunding market, with 75% growth. Social expectations on the part of investors seeking to give meaning to their savings, proven profitability of projects that investors know are sustainable, and project owners who have made participatory financing their own as a source of funding were cited as the main factors in the sector’s growth.
Start a Crowdfunding Website With Top 2023 Features
There is a growing interest in learning how to start a crowdfunding platform. And this is not surprising. Each crowdfunding platform is dedicated to a particular theme and cannot work effectively or win with a multitude of directions (like a generalist classifieds site, for example). You must therefore specialize in one area to succeed in the face of well-established competition.
However, it is worth considering the fact that crowdfunding platforms already exist in most popular areas, and you need to introduce a set of basic functions to meet basic expectations:
Investing in a project no longer requires expensive, time-consuming qualification processes. Now anyone – regardless of financial standing or background – is eligible to purchase equity and support ventures through email signup or social media accounts.
Investors should be able to quickly and easily browse campaigns that suit their interests. This feature must include the ability to filter through categories, project timing, duration of the campaign, the amount raised so far, and a brief presentation – such as a photo or video – offering an overview of the idea.
To gain the trust of potential investors, creators must provide a full presentation that includes their profile, the number of backers they are seeking to fund the project and any rewards promised. A business plan providing further details surrounding the product can also be beneficial in ensuring success.
Investing in several campaigns at once can be complicated. To ensure investors’ success, crowdfunding platforms must provide a convenient way to track progress and receive regular updates on all investments they make. An analytics dashboard is critical to understanding how projects evolve over time and ensuring that goals are met successfully.
Through the utilization of popular payment gateways, fundraisers are able to access potential sponsors from around the world and maximize their earning capabilities.
A crowdfunding platform provides creators with the essential tools to launch their campaigns swiftly. All that’s required is primary information about owners, project features and objectives – including a minimum fundraising goal and rewards for backers. Furthermore, depending on the target audience or specific needs of your category, you can also add additional content, such as identity verification documents/data points or an overview of challenges associated with reaching budget goals, etc.
Social media sharing
Social media and email campaigns are powerful tools when it comes to garnering donations. With the right approach, social media can be leveraged as an indispensable asset in creating a successful fundraiser.
More than ever, the service provider must be able to bring their own technical expertise, as well as their graphic and web design knowledge, because in this type of site, presentation matters. It is one of the most important keys to success, contrary to other sites.
Advanced crowdfunding website features
Support and assistance for projects
Many startups that come to your platform may not fully understand how to use it. How do you promote a campaign on the platform? How does financial management work? The user should feel comfortable and know that they can find help to solve any problem on the platform. For this, the support system should be fully functional.
In addition to the basic functions of the crowdfunding platform, care should be taken to ensure that users can freely interact with each other. For example, it could be a space where users can post announcements about grants, competitions, internships, scholarships, schools, or travel. They could also create content, for example, about creative entrepreneurship. This will help startups get more feedback on their projects.
A funds calculator will help startups calculate the amount of collection, taxes, platform commission, or payments. This automated feature will make using the platform more comfortable.
Reminders and confirmation
Communication with users is important. Create a tool that will remind users of any changes to the project. Also, important actions should be recorded by e-mail. That is, the platform must keep its users informed on all “events” and actions.
Create a preview page for a campaign that hasn’t started yet. This will attract the first investors even before the start of the campaign.
How to Start a Crowdfunding Website With The Best Technology Stack
In developing crowdsourced platforms, the Rewisoft team uses a large stack of technologies, including:
- Programming: PHP, Python, Node.js;
- Modern approaches to creating a responsive, cross-browser layout;
- PostgreSQL, MySQL, NoSQL, MongoDB, and Redis.
How Much Does It Cost to Start a Crowdfunding Website
The organization of a crowdfunding platform is not limited to the development of a website, an app, or social media.
Other stages are also important:
- Hiring employees;
- Forming a technical support base;
- Establishing a legal entity;
- Obtaining permits and licenses.
All of this requires additional funds, which must also be taken into account in determining the potential budget for the project. And this is by no means a complete list. But on average, the full development cycle of a crowdfunding platform is estimated at $250,000.
The final cost may vary based on the capabilities and needs of the team (or specialist) implementing the project. The best option would be to contact us, Rewisoft, for a full consultation and preliminary assessment.
To make it easier for you to calculate the approximate cost of your future crowdfunding project, we suggest taking a look at the following table:
How Long Does It Take to Start a Crowdfunding Website
The time it takes you to create a crowdfunding website depends on the following factors:
- Project complexity
- Functional complexity
- Number of features
- Design complexity
- Selected tech stack
- Team experience
To ensure that the creation of a crowdfunding website does not take you ages, we advise you to cooperate with experienced specialists. The Rewisoft team knows how to create a crowdfunding website to meet all deadlines and build the site within the stipulated time frame. Below is a table that will help you calculate the approximate time required to complete a crowdfunding project:
How to Start a Crowdfunding Website: Summary
We strongly recommend discussing the creation of a crowdfunding platform and all areas of digital service through a specialized web agency. Responsible and competent specialists will be able to translate the customer’s idea into reality as precisely as possible, satisfying all the client’s technical requirements and personal wishes