Vector of three people standing shoulder to shoulder. Represents getting funding through crowdfunding platforms.

Crowdfunding Basics for Small Businesses

Crowdfunding may seem like a modern funding method, but it’s actually been around as far back as the 1700s. However, the diverse options and viability of crowdfunding didn’t take hold until the introduction and explosive growth of the internet. Now, it presents a potent alternative to traditional business financing allowing you to raise funds while validating your business idea in real time. 

It offers several dynamic platforms to engage a crowd of potential backers, transforming them into your product’s first customers, your most vocal supporters, and sometimes even shareholders.

This guide will help you navigate the crowdfunding landscape, understand how to run a successful campaign, and explore the specifics of crowdfunding platforms. Let’s get started.

Things to consider before crowdfunding

Before you dive into raising money through crowdfunding, there are a few things you should consider.

Kickstarter explained

When you think of crowdfunding websites, Kickstarter is likely the first thing that comes to mind. While it wasn’t the first, its launch alongside IndieGoGo in the late 2000s signaled the emergence of crowdfunding as a major funding source. 

Here are some of our best resources to help you succeed on the platform.

Patreon explained

Patreon is a unique platform in the crowdfunding landscape. While many others focus on funding a singular project, Patreon allows for ongoing funding. If you’re a content creator, artist, or smaller media company this can be a great option. 

Crowdfunding templates and tools

Resources to help you raise capital through crowdfunding sites.

Crowdfunding FAQ

No, crowdfunding typically doesn't require repayment. However, you're often expected to provide rewards or equity to backers.

The pros of crowdfunding include access to capital without incurring debt, market validation and customer engagement, and increased visibility. The cons include public exposure of your idea that may risk imitation, significant time and effort to run and operate, and if the campaign fails, it might damage your reputation.

Yes, crowdfunding can be an effective way to raise funds to kickstart a new venture, launch a product, or fund a specific project.

1. Donation-based: Backers donate without expecting a return. 2. Rewards-based: Backers receive rewards based on their contributions. 3. Equity-based: Backers receive a stake in the company. 4. Debt-based: Backers lend money in exchange for interest payments.

Rules vary by platform and type of crowdfunding but typically include setting a clear goal, offering transparency about the use of funds, and fulfilling any promises made to backers. For equity crowdfunding, there may be additional legal and financial regulations including a limit on how much funding you can raise. Always research and comply with the rules of your chosen platform and relevant legislation.