How to Build a Crowdfunding Platform for Fundraising

We all heard about Kickstarter, Patreon, Indiegogo and other platforms that help to raise money for the implementation of various ideas and projects. But few people know that these sites work for a reason: they keep 5% of the funds raised as a reward for intermediary services. These are huge profits, and today we will talk about how to grab a piece of this pie for yourself by building your own crowdfunding platform to raise funds.

Step 1: Niche / Target Audience

The first thing you need to start a crowdfunding platform is to determine its positioning. Will it be a site to raise money for charity projects, film making, real estate development, video game development or something else? You will finance only large projects, support beginners or everyone (for example, to collect money for potato salad).

1. Kickstarter focused on small P2P campaigns at the start. That is, anyone could go to the site, create their own initiative and ask for financial support from the users of the site. Even if it was some kind of stupidity, like finding money for cooking potato salad. Only a few years later the site began to be used to finance large projects in which not only ordinary users, but also large companies and accredited investors can participate.
2. Indiegogo began as a platform for financing projects in the film industry in 2008, which allowed it to stand out among others and thus receive the first crowdfunding projects. This is despite the fact that the site has de facto funded almost any initiative.
3. Patreon was launched in 2013 to help bloggers, YouTube, streamers, artists and musicians to accept money from fans of their work. That is, this is a platform for collecting donat.

Choosing a niche is important because it has the greatest influence on the development of the design, marketing policy and functionality of the site. It depends on the niche (target audience) how your crowdfunding platform should look, how and where it will be advertised, and what tools to raise funds into it should be integrated.

For example, if you create a site to raise funds for the construction of real estate or launch large business projects, then you can not do without KYC. If this is a platform to support content creators, you need pop-up windows for subscriptions and donate messages (with their voice acting). If this is a platform to support blockchain startups, smart contracts are needed to raise funds and pay tokens.

Focusing on successful competitors, you can understand what tools should be integrated into the platform of one or another orientation. Here are some popular niche crowdfunding sites.

Step 2: Crowdfunding Models

Having decided on a niche, you can begin to choose the optimal crowdfunding business model - how your site will collect money from investors and under what conditions. Such models can be divided into five types:

1. Based on donations. Donators participate in crowdfunding campaigns, without expecting any return. Suitable for charitable and relatively small projects, when people throw off a few dollars on their favorite initiatives. Notable examples are the Crowdrise and MightyCause (formerly Razoo) sites targeted for charity. This model can also be used on Kickstarter and Patreon.
2. Based on rewards. The variation of the model with donations, only in this case, investors receive a pre-designated reward. The reward can be anything from a souvenir mug to Dota2 joint game. But as a rule, the award is given in the form of a service or product for which the initiators of the crowdfunding initiative are seeking funding (plus bonuses for those who donated more than usual). This model is used on Kickstarter and Fundable.
3. Based on rewards. Investors invest in and receive a share in the business or at least a financial return on their investments. Good model for commercial initiatives. Investors usually receive shares, a stake in the company, dividends or the right to a portion of the profits. This model is used by IndieGoGo, Lending Club and RazooCrowdfunder.
4. Based on P2P crediting. Private investors invest money, counting on their return and remuneration proportional to the size of the investment. There are variations with and without guarantees of the return on investment. Typically, this model is used as an alternative to bank loans.
5. Based on tokenization. A relatively new practice that is used to finance blockchain startups. Investors give money to the initiators of the crowdfunding initiative, receiving project tokens in return. Tokens can represent digital signatures, a project’s share, platform access tokens, or other things.

After choosing a crowdfunding model, you need to determine the financing terms. So, Kickstarter does not finance any project if it has not collected the stated amount of money. Investors designate a desire to participate in a campaign through the escrow of funds (collateral), which will be transferred to the project initiator only if a financial goal is reached. IndieGoGo policy is more flexible. There is both an “all or nothing” option, as well as partial funding and “giving all that we collected”.

What other things need to be included in the financing terms:

1. Registration rules for project initiators and investors.
2. Financial goal and the size of the minimum or maximum investment.
3. The number of days of a crowdfunding campaign and the rule in case the financial goal is achieved: to stop the campaign or not.
4. Who can participate in the role of initiator and investor: anonymity, country, legal status, size of investments and so on.
5. Other conditions.

Step 3: Monetization Approaches

Interest fee. Most platforms that work with small and / or creative projects charge a fee to initiators of crowdfunding initiatives as payment for intermediary services. For example, Kickstarter takes 5% from projects that have achieved financial goals. IndieGoGo also takes 5% from successful campaigns, as well as 9% from those who failed to collect the required amount.

Listing fee. When investors are offered equity participation in a project (shares, share of profits), the platform, as a rule, takes a fee in the form of a one-time payment for listing the project. This is due to the fact that, according to SEC regulations, such sites are not entitled to charge investment fees. Fees vary by site.

Service fee. Such a model is typically used by P2P credit platforms, such as LendingClub, Prosper and Landpay. They charge a fee for payments from borrowers, take a share of the loan taken, charge a fee to view a borrower's profile, or charge a percentage of the lenders' annual margin. So, LendingClub charges 1% of each payment of the borrower, and on Landpay you need to pay 2 -2.5% for viewing the profile and issuing a new loan and 0.5-1% for the annual margin.

Subscription fee. This is rare, but some crowdfunding platforms charge for “membership” or “subscription”. Usually, fees in this case are fixed and tied to access to services. For example, you pay $ 100 a month and you can run 3 projects, $ 150 - 10 projects, $ 300 - an unlimited number of projects. This model is popular on sites for musicians, photographers and other people who can look for money for small short-term projects. Example of a site with a subscription - Fundable, for access to which you need to pay $ 179 per month.

Payment for advertising and additional services. The fee for the fact that the crowdfunding project is placed on the main page of the platform is at the top of the listing or recommended to regular investors. In addition, you can take money for consulting services, due diligence materials and the placement of regular contextual advertising. This model of monetization is usually used as an addition to one of the above. And involves a paid promotion projects.

Step 4: Platform Design

When developing a design, a clear task must be set in front of the development team - it should be recognizable and target-oriented. When you go to the platform page, the user should immediately understand what the site is focused on and how to perform certain actions: register, run a project, view the listing, invest money.

To achieve this, you need to create custom scripts for project initiators and sponsors. At the same time, on the main page, in addition to the blocks for creating and viewing initiatives, there should be explanatory sections for different categories of projects: music, gadgets, movies, games, and so on.
Next, you need to develop a project designer that is understandable for newbies, whose functionality will allow you to create a bright and effective presentation. It should have tools for inserting text descriptions, photos, videos, graphs and tables. Some projects may also require space on your server for project demo or MVP files.

Another thing to think about is developing a personal account and a mini-CRM. The Sponsor’s statistics will be collected in the Personal Account: how much money he invested in which projects, whether they achieved success, what the reward will be and the like. Mini-CRM will help project authors to view profiles of sponsors, filter them by region, type and amount of reward, set statuses and communicate with them.

Step 5: Platform Functions

Easy and quick registration. The process should be as clear, simple and fast as possible. Ideally, registration should be via social networks or Google accounts with the ability to edit your personal profile.

Project Listing. A list of initiatives available for investment with detailed information about them, an icon for investment and the ability to contact the author of the project. We need to create several templates to represent various types of projects: film making, video game development, charity, real estate, and the like.

Account management. It should be smooth and intuitive, so that neither side rack their brains over what happens with the crowdfunding campaign, how much money is collected, who paid, when the deadline and so on. Along with the investment schedule, transaction and reward information, you can also add several analytical tools to visualize numbers and source data in a more understandable form.

Payment and Marketing. Tools for working with payment gateways and marketing tasks. For the convenience of users, you can connect MangoPay, LemonWay, GCEN, WePay and PayPal. If you are working not only in North America and Western Europe, then you should also connect several local payment gateways.

Safety and Support. A reliable way to verify the identity of potential donors and ensure compliance with the requirements of KYC (Know Your Customer) is required. On the market you can find many similar solutions that can be integrated into your website or used as an external source of information. In addition, we need a full-fledged support service, which will deal not only with KYC, but also with the resolution of disputes, typical problems and help to users.

Step 6: Marketing Policy

The first steps. Usually, people perceive marketing as something that needs to be done after our crowdfunding platform has been built. However, if you know your niche and target audience, then why not start promotion at the stage of website development. There are several ways to do this:

1. Buy the desired domain. Register a domain with the desired name before your competitors do it. If the name you need is already taken, you may be able to purchase it on sites such as eBay, Afternic, Flippa and Sedo.com.
2. Start promotion in social networks. Register accounts on Facebook, Twitter, Instagram, Linkedin, Youtube and start promoting your site there. Come up with promotions, discounts and other bonuses for those who are the first to register on your site.
3. Get a landing page. The fact that the crowdfunding platform is still in development does not mean that the domain name should be empty. Use it to launch a beautiful landing page with information about your site, crowdfunding conditions and bonuses for pre-registration.
4. Get feedback. Use social networks and landing pages to conduct surveys among potential users regarding their vision of an ideal crowdfunding platform and how well your workings out correspond to this vision.

Launch of the project. The launch of your website should be a high-profile event, or rather, you should make it happen. For this you need:

1. Organize the appropriate event in your city with the broadcast to the Internet in advance. Invite journalists, investors, businessmen and media personalities to explain the goals of your startup and give answers to basic questions in the form of a presentation.
2. Find in advance authors of several interesting standing crowdfunding campaigns who will agree to use your platform to raise funds. Help them with foresight and search for sponsors, preferably outside the Internet - through personal contacts or banal calling of sponsors and venture funds. Do everything for the first initiatives to raise money in the shortest possible time.
3. Organize your email marketing campaign and social media campaigns in advance. You can use Constant Contact, MailChimp, Mad Mimi, Aweber or other marketing tools.
4. Make big discounts for all projects at the start.

Step 7: Development and Technology

The last stage of launching the crowdfunding platform is to write the site code, test it and deploy it. Development can start from scratch, which is long and expensive, but gives you maximum control and allows you to create a truly unique website. And you can use templates and almost ready-made solutions. Here are a few of these options.

Final word

When you finally decide that you are ready to develop your own crowdfunding platform, before you do something, ask for legal advice. Quite often, such activity requires registration or a license from a government agency, for example, the SEC in the USA or the FCA in the UK. This is especially important if you provide a platform for financing the construction of real estate, loans or participation in high-risk investment projects.

A lawyer is also needed in order to correctly draw up a User Agreement and typical contract forms that will govern the relationship of the parties on your platform.

Best of all, if you take a good lawyer in the staff or hire a law firm on a permanent basis.