Why Crowdfunding Websites Work

The past few years have seen an explosion in crowdfunded companies and as a result, both rewards crowdfunding sites and equity crowdfunding sites have grown in popularity as well. There's now a crowdfunding site for just about everything from yoga studios to medical devices.

But what makes a crowdfunding website effective?

At Fundable, we enable both equity crowdfunding and rewards crowdfunding, so we've had a very interesting purview of all types of campaigns at the same time.

We've just completed a survey of the past year, including the last $70 million committed to Fundable businesses, to understand exactly why crowdfunding websites work so well.

A Marketing Platform Matters

Our survey of successful campaigns has uncovered one very clear fact — crowdfunding is marketing, plain and simple.  If the idea of marketing to investors sounds foreign, consider the fact that it's been the essence of fundraising since the dawn of time.

Whether it's Silicon Valley Web startups marketing to venture capitalists on Sand Hill Road or an aspiring restaurateur pitching to angel investors in their community, it's all about marketing.

What we're seeing more and more is that good fundraisers are good marketers.  And like any good marketer, successful entrepreneurs consistently start with a very focused marketing plan.  They begin building their target lists well in advance of their crowdfunding campaign. They reach out to media outlets before they launch. They rally their early backers to get a surge of support on the day of their launch. It's well planned, and not at all incidental.

For example, we saw Lulzbot, a large scale 3D printer, blow past their $100,000 funding goal in just three days. Was that because the printer was just so amazing?  Well, it is an amazing printer but that's not the full story. The team at Aleph Objects had been curating a list of potential backers for months before their launch. This allowed them to market to and capture all of this demand well ahead of time, making their crowdfunding campaign far more effective.

Casting a Wider Net

Beyond the ability to use a marketing platform, we're also finding that crowdfunding websites are being effectively used to capture different types of support simultaneously.

In days past, there were campaigns to drive affinity support (also known as charity), campaigns to drive a pre-order (video games, gadgets) and campaigns to solicit investors. Now all three can be done at the same time, which creates a huge new opportunity for entrepreneurs.

Capturing Affinity

Long before commercial crowdfunding sites existed, raising money from the crowd was being done both online and offline. If you've ever gotten an invite to support someone's Race for the Cure or called in to support a PBS fundraising event, you've been part of a crowdfunding campaign.

Charity campaign fundraisers were the pioneers of crowdfunding because they tap into people's natural affinity to support causes they believe in. Rewards and equity crowdfunding campaigns tap into the same vein, allowing your family, friends and fans to support you with small amounts of capital that can add up quickly.

Prior to crowdfunding websites, capturing this type of capital was really painful. Imagine calling all of your friends to ask them for a $25 contribution toward starting your company. Aside from becoming part of everyone's blocked call list, you'd also run into the challenge of actually capturing all of those contributions.

The ability to send out a single message to your entire network, solicit support, and capture funds instantly removes all of these roadblocks.

The limitation to this type of funding is that your affinity capital runs out pretty quickly, especially when funding a business. For small projects of less than $5,000 to $10,000 there's a likelihood that affinity alone can support you. But once you get north of $10,000, you need more than good graces to drive larger funding targets.

Pre-sale Value

Where affinity capital is quickly exhausted, pre-selling an actual product has a virtually unlimited runway to raise capital. Once again crowdfunding has provided an important innovation that many people have overlooked.


The popularity of crowdfunding has encouraged widespread acceptance of requests for capital prior to production. This has lead to an explosion of new campaigns allowing entrepreneurs to self-capitalize their ideas.

Equity = Crowdfunding 2.0

If raising capital on affinity and pre-sales represented version 1.0 of crowdfunding, adding equity has evolved the crowdfunding industry to version 2.0.

Affinity and pre-sale campaigns tend to fall short in a few key areas, especially as they relate to funding businesses. First, many companies do not have a product to pre-sell, like a restaurant for example. Second, the amount of capital needed often far exceeds what can be driven through mere affinity and pre-orders.

This is where equity comes in.

Entrepreneurs can now expose their campaigns to a global audience of potential investors. This ability to showcase your deal publicly has been made available in the United States by the JOBS Act, which has enabled the ability to publicly solicit equity offerings. It's hard to believe, but prior to September of 2013, entrepreneurs were not allowed to present their equity funding offerings publicly.

This presents a huge opportunity not only for entrepreneurs, but for investors as well. Because entrepreneurs were limited to private conversations within their network, investors only had access to new deals on a very limited basis.

The emergence of equity crowdfunding sites changes that dynamic completely. Now both entrepreneurs and investors can get access to a much broader population. This means that finding equity investors, and larger checks, is now more available than ever.

Crowdfunding Opens Doors

Now that entrepreneurs have the tools to effectively present their funding needs to a large audience and capture every possible funding type in the same campaign, the ability to capitalize a new idea has changed dramatically.

This doesn't mean that every company will be funded, but it does increase — by orders of magnitude — the likelihood that your new idea will get to market, which is great news for everyone.
