App version: 0.1.0

Guide to Creating a Crowdfunding Platform in 2022

Guide to Creating a Crowdfunding Platform in 2022
Kelly Boyer Sagert
Kelly Boyer SagertUpdated August 15, 2022
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Crowdfunding has evolved from a niche way for an individual to raise money for a product or cause to a popular source of funding for new businesses, existing businesses, and nonprofit organizations. Crowdfunding as a business in itself has also grown in popularity, with owners earning money by keeping a percentage of funds raised by users. If you’re interested in starting your own crowdfunding business, you’ll want to do what you can to stand out from the crowd and carefully map out a plan for success. Not sure where to start? Read on. What follows is a simple guide to starting your own crowdfunding business.Recommended: Guide to Starting a Small Business

What is Crowdfunding?

Crowdfunding is a method of raising funds for a new venture, project, or product. Instead of relying upon large contributions from a small number of people — such as venture capitalists or silent partners — crowdfunding relies on small contributions from a large number of people. Crowdfunding platforms bring individual investors and entrepreneurs together, and earn revenue by taking a percentage of the funds raised on the site.

8 Steps to Starting a Crowdfunding Business

Starting your own crowdfunding platform takes many months of research and planning. To simplify the process, we break it down into eight steps.

1. Look at the Market and Competitors

As with any kind of new business, you’ll want to create a company that’s different from and/or better than current offerings. A good way to do this is to thoroughly review all the currently available websites that focus on crowdfunding for small businesses. You’ll also want to choose what type of crowdfunding your site will offer. Options include:
  • Equity crowdfunding Contributors become shareholders in the business they invest in.
  • Donation crowdfunding Money is typically given without expectation of any return.
  • Reward-based crowdfunding Contributors receive a gift (such as the product itself) for a contribution of a certain amount.
  • Loan crowdfunding Funds given will be paid back at an agreed-upon interest rate and payback date.

2. Formulate a Business Plan

The U.S. Small Business Association provides plenty of resources to help you create a solid business plan, including templates and sample plans. To get started, here are some things you may want to consider. 

Audience

What businesses, groups, or people might use your crowdfunding platform to list their projects? Who might donate to them? The SBA recommends that you gather demographic information on your audience, including their age, wealth, and interests. From there, you can estimate your potential market size.

Niche

LIke any business, a crowdfunding platform generally can’t be all things to all people. It can be a good idea to pick a relatively narrow niche you have both an interest and expertise in, and do it well. You might decide to offer funding services specifically to non-profit organizations or focus on serving small businesses in a certain industry, like science or tech. Or, you might choose to create a platform for creative/artistic projects. What matters is that you choose a niche that isn’t overly saturated with competitors, and allows you to bring something unique to the table. 

Revenue

When you’re brainstorming your business strategy, you’ll want to consider how you will make money with crowdfunding. These platforms typically generate their funds by receiving a percentage of the money raised on them. 

3. Find Investments

You’ll need to calculate how much it will cost to start your crowdfunding platform. This will include the cost of designing a website, which is at the heart of this type of business. Other costs may include:
  • Legal and financial professionals to advise you
  • Market research costs
  • Buying your domain
  • Computer equipment
  • Supplies
  • Advertising and marketing costs
  • Employee wages
Recommended: How Much Money You Need to Start a Business

Small Business Loans

There are a variety of business loans that can help you launch or expand a small business, including SBA loans, term loans, business lines of credit, online financing, and microloans. While banks will generally only work with companies that have been doing business for at least two years, there are also small business loans for start-ups. To find the best type of loan for your crowdfunding site, it can be a good idea to shop around and compare small business loan rates before choosing a specific lender. Recommended: Applying For and Getting a Business Loan

Seed Funding

Seed funding is money — from any source — that helps get a startup off the ground. Seed funding can help a business prove that their concept works or launch a specific product or idea. This type of funding is not a loan. To receive funds, business owners usually give investors an ownership share and/or a share of the profits in the company in exchange for capital investment. 

Crowdfunding

As you look for money to start your crowdfunding business, don’t leave out the possibility of crowdfunding itself. In this case, you’ll be the customer of someone else’s crowdfunding business. 

4. Find Designers and Developers

To start getting a vision of how your crowdfunding platform will look and function, it can be a good idea to explore how other crowdfunding sites operate, taking note about what works well and what doesn’t. You’ll then want to start looking for professional web designers and developers who can make your vision a reality. 

5. Develop Your Site

Once you find a designer or developer you want to work with, it’s time to have them create your crowdfunding site. Be sure to stress the importance of making the site attractive and engaging, as well as simple for your customers to use. In addition, you’ll want the back-end of the site to be easy to manage, and payments to be secure. It's also a good idea to make the site both mobile- and desktop- friendly. When developers create a wireframe, you’ll be able to see how the site will appear to your end users — this is a chance to make any changes you think will make the site look and function better.

6. Test It

Now it’s time to test the platform to make sure it is easy to use and discover any bugs or problems that need to be ironed out before you go live. Your website developer may also offer site-testing services. 

7. Market Your Crowdfunding Platform

You built it, now you have to make sure they come. To drum up excitement about your platform, post the news of your upcoming launch on social media sites where your target audience might see it, using both organic posts and paid ads. Also consider doing an email marketing campaign.

8. Launch

To make sure your platform kicks off with a bang, it can be a good idea to find several intriguing crowdfunding campaigns that fit your niche and invite those entrepreneurs to use your platform (for free or at a discount) for fundraising. This will show customers exactly how the site works and provide interesting investment opportunities right out of the gate.

Pros and Cons of Starting a Crowdfunding Platform

There are both advantages and disadvantages of starting your own crowdfunding site. Here’s a look at how they stack up.

Pros

  • Building the platform is fairly easy and once you have it, you’ll have the basics of your business in place. 
  • You don’t need to invest in a brick and mortar store and your employees can work remotely.
  • You have an opportunity to help a large number of people.
  • If you get significant contributions to your site, then your share of the funding dollars can also be significant.

Cons

  • Crowdfunding is becoming a saturated market. So, you’d have to come up with an original idea that will draw people to the site. 
  • You’ll need funds to build and market your platform. This can come from your own savings, business loans, and/or investors. 
  • If you don’t get enough participants to list projects on your site, then you could go out of business, losing the money you’ve put into the platform.
  • If people don’t contribute to the businesses on your site, then it will become more difficult to get projects listed on your platform going forward.

Trends in Crowdfunding

One form of crowdfunding that is growing particularly fast is equity crowdfunding, in which contributors become shareholders in the new business. People are also investing heavily in crowdfunding campaigns for products that can help people stay healthy or minimize health risks (perhaps not surprising, given the pandemic). Crowdfunding for nonprofits is also on the upswing, with more and more charities and organizations using these sites to raise money.

Important Crowdfunding Site Features to Include

To make your site stand out from the competition, it can be a good idea to offer plenty of support and assistance to people who want to post projects. Consider offering an FAQ section, as well as a forum where participants can get support, answers to their questions, and exchange information and ideas.  Offering an opportunity for participants to communicate with one another also helps increase engagement. Also consider offering content about creative entrepreneurship on your site, and having a system where you can send updates to users, such as when you are changing or adding features to the site.

Small Business Loan Rates From Lantern

If you’re interested in exploring business loans to get your crowdfunding site off the ground, Lantern by SoFi can help. With our simple-to-use online lending platform, you can compare offers from multiple small business lenders matched to your business’s needs and qualifications with just one short application and no commitment.Find out if you’re approved as early as same day 

Frequently Asked Questions

How do crowdfunding businesses make money?
How can you start a crowdfunding business with no money?
How saturated is the crowdfunding site market?
Photo credit: iStock/Ridofranz
LCSB0622007

About the Author

Kelly Boyer Sagert

Kelly Boyer Sagert

Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
Share this article: