Starting a Successful Crowdfunding Platform: Part 1

This is the first in a series of posts on the topic of how to start a successful crowdfunding platform. Launcht is in the unique position of powering more new crowdfunding platforms than anyone else in the field of crowdfunding platform software. From our 45+ clients we Start Button Invis Backgroundhave learned a few things that we would like to share with anyone starting their own crowdfunding or crowdvoting platform. This post will focus on refining your business model.

Business Model
First, honestly, decide if you are trying to start a viable business. Many people who create crowdfunding platforms don’t intend to make money from them, they are quite happy to simply be the go-to destination for a specific community, competition, or niche. That’s their goal. Others have big dreams and are reaching for big impact with big dollar signs ahead of them. Search yourself and figure out where you are on this continuum.

Not about the money
If you’re focused on becoming a go-to destination, then don’t charge extra fees on top of the required credit card transaction fees. Don’t charge an application fee. Focus instead on building buzz and getting a handful of quality projects on your platform to begin building momentum. Use each story told in those first campaigns to garner earned media attention from the most relevant bloggers and reporters in your market. Consider offline events and services to complement your platform and get your name heard by the people who should be using your platform. For what it’s worth, aside from the fees part, this focus on earned media and getting heard in your market goes for the financially motivated platforms as well.

About the money
If you want to make money, then you need to be sober about the facts. Do some back of the napkin math on how much money you would like to make from the platform each month. Part of this will come from percentages taken from funds raised, but I have to be honest with you, it takes a while for this percentage to amount to much. The average percentage collected by our clients from the funds raised on their platform is 5%. Assume you had a string of good early months for a startup portal and you were seeing $100,000 raised on your platform each month. That would be $5,000 to you. Is that enough? Is it close? Would you have to shut down if you had a dip in transaction volume one month? What would you do if you had a real break-out month and saw transaction volume spike? If you are getting ready to start your own crowdfunding platform, those aren’t rhetorical questions.

If you run the numbers and you realize it’s going to take a year before you can safely bet that you’ll see steady volume of $100,000 per month flowing through your platform, what are you going to do until then? Here are some options you should consider:

  • Application fees. Even $49 up front and perhaps a reduced percentage on funds raised, might help balance the books in months where you have a lot of initial interest from campaign managers, but little follow through on their part. With an application fee, they take their intention more seriously and you earn some revenue even if they don’t do much with their campaign after it’s launched.
  • Value added services. Can you provide legal services, design consulting, business process analysis, office space, classes, or a huge intern pool? In other words, what do you have or could you have that your market wants. How can you make it a compliment to your platform, so that you create momentum and revenue that will feed into your larger platform’s goal.
  • A competition. It takes a lot of time and energy, especially in the first couple years of running a crowdfunding platform, to get campaigns on the platform and manage them. You may find it more satisfying and rewarding to make a competition, time-limited, or event-centered platform initially. By focusing your time and effort into a specific window, the campaigns on your platform will do the same. It also makes for timely news that helps you get earned media, sponsorship revenue, and build an all important network around your platform. Maybe it’s a design challenge, maybe it’s a business plan competition, maybe it’s a foundation sponsored matching grant competition, maybe it’s an open innovation competition. After that runs its course, you will certainly have momentum that you can convert into a cyclical process or an ongoing one.

What bootstrapped business models have you considered to help get your platform up and running effectively?

About Freeman

The CEO and Co-Founder of Launcht is living his dream.
This entry was posted in What we Think and Believe. Bookmark the permalink.

3 Responses to Starting a Successful Crowdfunding Platform: Part 1

  1. Douglas Deck says:

    Part 1 provides some good insight. One question though….wouldn’t charging an Application Fee discourage people from starting a campaign? After all, they are typically using crowdfunding to raise money.

    • Douglas, Indeed charging application fees can discourage people especially with a new platform. If the platform is going to give them a lot of visibility for their campaign then the application fee might not seem as big of a hurtle. What it comes down to is how much money does the portal need to survive and what the breakdown of fees are that will make that possible. The option of an application fee needs to be part of that conversation.

  2. Very interesting, we are glad to read this advise, we are actually preparing crowdfunding worksops in order to inform and teach people how it works and of course to invite them to use our soon-coming platforms. Thanks a lot.

Leave a Reply to Douglas Deck Cancel reply