How to Create a Crowdfunding Platform: Features, Technology, and Costs

Entrepreneurs can raise initial capital to finance their ideas in a variety of ways. In addition to traditional bank credit and loans, crowdfunding has gained popularity. It’s a simple way to find like-minded individuals and businesses who are ready to invest in your idea and contribute to your success.

However, creating a successful crowdfunding platform is not a simple task. There are many factors to consider, from the user interface and the right feature set to the legal and security implications of running a crowdfunding platform. Besides, new players appear on the market almost every day, so it’s vital to create something out of the ordinary to gain the audience’s attention.

In this article, we will take a closer look at the process of developing a successful crowdfunding platform and discuss the key considerations that must be taken into account.  

What is crowdfunding, and how does it work?

Before jumping into the development process itself, let us clarify what crowdfunding is. Crowdfunding is a method of raising funds for a project or venture by soliciting small contributions from a large number of people, typically via the internet. Instead of getting a lot of money from a few people, a creator gets a little money from many people. This approach to fundraising allows almost every person or business to raise the necessary money for their projects, personal needs, or charity.

A crowdfunding platform facilitates the fundraising process. It works well for both parties: creators can organize campaigns and raise necessary funds, and donors or backers can support the projects they like and get additional materials from creators.

This is how the process typically works:

1. A project creator sets up a crowdfunding campaign on a platform and provides details about the project, such as funding goals, a business plan (if necessary), and rewards for backers.

2. The campaign is then promoted on the platform or through other channels, like social media, to attract backers.

3. Backers can choose to support the campaign by making a financial contribution.

4. If the campaign reaches its funding goal before the deadline, the project creator receives the funds and proceeds with the project. If the campaign doesn’t reach its funding goal, the backers' pledges are refunded.

5. Project creators can offer rewards to backers. Rewards can include things like early access to the finished product, exclusive content, or other types of unique experiences related to the project.

A wide variety of projects can be funded through crowdfunding, including movies, video games, charity campaigns, music albums, book publishing, and even scientific research. It allows individuals and organizations to bypass the obstacles of traditional funding channels and connect with a global audience of potential supporters.

Types of crowdfunding

Even though the basics of crowdfunding are simple, a platform can use various types of terms under which backers are able to invest: 

Rewards-based crowdfunding

The essence of this approach is quite clear from the name itself. Backers invest money in ideas they find interesting and potentially successful, and creators give them various rewards depending on the project. 

In addition to providing updates on a project, a creator can offer investors basically anything. They can offer early access to the finished product, project merch, or exclusive content. Once a backer receives the product and all related perks, the deal between the parties is considered completed. This is how platforms like Kickstarter function.

Equity-based crowdfunding

Unlike a reward-based approach where the deal finishes with the product release, equity-based crowdfunding allows investors to remain engaged with the company in the future. With the help of this approach, backers can invest in a company in exchange for equity ownership. 

This means that backers basically become the owners of securities—equity in the company, revenue share, debt, or a convertible note—and can expect a return on their investment if the company succeeds. They can also sell their securities to other investors. Although such an approach can be profitable, it may not be suitable for every project.

Loan-based crowdfunding

Loan-based crowdfunding is a form of fundraising in which individuals or businesses can borrow money from a large number of people via an online crowdfunding platform. Investors typically receive a fixed rate of return on their investment, and borrowers get the funding they need at a lower cost than they would through traditional lending sources.

Donation-based crowdfunding

You definitely know about donations. Services like Twitch and YouTube use this approach to support streamers and creators. This type of crowdfunding allows backers to donate money to a project or cause with no expectation of receiving anything in return. This type of crowdfunding is often used to raise money for charitable causes, personal expenses, or creative projects.

Hybrid crowdfunding

If you feel like you don’t want to limit yourself to one type of crowdfunding, you can implement a combination of any of the above-mentioned types. However, such a solution will cost more than using a single platform. Also, in order to avoid overwhelming your users, start with one approach and then implement further updates once you get feedback from real users.

Niches to explore

As we already mentioned, crowdfunding can be used to raise funds for almost any kind of project or idea. However, some niches seem to be more advantageous for both creators and platforms themselves:

• Creative industries: music, film-making, book publishing, and video games.

Crowdfunding can help creative enthusiasts pursue their dreams. There are crowdfunding platforms that help people start music or directing careers, raise funds to publish a new book, or release a video game. These platforms commonly use donation-based or reward-based approaches to attract the attention of potential backers.

One interesting feature of these platforms is the ability to offer subscriptions. Usually, backers make a one-time investment in a project, but services like Patreon allow users to subscribe to exclusive content from creators. This model benefits both backers and creators—creators have a stable revenue flow, and investors receive platform-exclusive content and early access to the product.

• Real estate

Even though the real estate market is going through tough times right now, plenty of people still want to buy a house. This is why this type of crowdfunding exists. A real estate crowdfunding platform allows individual investors to invest in short-term, high-yield real estate loans. Platforms like these help investors diversify portfolios of real estate-backed loans. For example, PeerStreet offers a variety of investment options, including loans for fix-and-flips, rental properties, and commercial properties. It also provides detailed information on each loan, including the property address, loan amount, loan-to-value ratio, and projected return.

• Eco-friendly startups

The sustainable and renewable energy sector is growing rapidly as more people become aware of the importance of reducing carbon emissions and protecting the environment. This has led to an increase in investment in sustainable projects like solar and wind energy. Crowdfunding platforms can play a vital role in this sector by providing a platform for individuals and businesses to raise money for eco-friendly projects.

• Charity

Technically, a lot of charity projects work on a crowdfunding basis from the very beginning. Crowdfunding can be a powerful tool for charity work by providing a platform for individuals and organizations to raise money for greater causes. Most importantly, crowdfunding campaigns can be used to educate the public about the charity's mission and demonstrate the impact of its work. 

These are just a few examples, but the possibilities for niche crowdfunding platforms are endless. For example, consider the potential for healthcare, agriculture, or scientific discoveries. By focusing on a specific niche, a crowdfunding platform can differentiate itself from competitors and attract a dedicated community of backers.

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Best crowdfunding platforms

There are many crowdfunding platforms available, and the best one for a particular project or campaign may depend on factors such as the type of project, the target audience, and the funding goal: 

💻 Kickstarter

Source: Kickstarter

This crowdfunding platform is the number one market leader. Kickstarter focuses on creative projects such as art, music, film, and technology. Kickstarter offers an all-or-nothing funding system, meaning backers are charged when the project goal is reached. If the project fails, no one is charged, and the creator receives no funding. 

💻 Indiegogo

Source: Indiegogo

Indiegogo offers a wide range of categories for projects, including technology, film, and charity. Unlike Kickstarter, this platform allows for flexible campaigns so that creators can keep as much money as they manage to raise, even if the project fails to reach the fundraising goal. 

💻 Patreon

Source: Patreon

We already mentioned Patreon earlier in this article. This platform is designed for creators such as writers, artists, and musicians, who can offer exclusive content and rewards to their backers regularly.

💻 Crowdfunder

Source: Crowdfunder

This platform focuses on startup and early-stage companies and helps them to raise seed, venture, and growth capital.

Ultimately, it's important to evaluate the fees and terms of each platform, as well as their target audience and reputation, before choosing a platform for your campaign.

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Crowdfunding market overview

Another part worth researching before the development process is the state of the market: 

• According to Statista, transaction value in the crowdfunding segment is projected to reach US $1.10bn in 2023.

• Statista also says that the average funding per campaign segment amounts to US $7.26k.

• Fundera claims that in 2021, Kickstarter was the most successful crowdfunding platform, with 319,051 completed projects.

• There are 1,478 crowdfunding organizations in the US, according to Crunchbase.

Source: Statista

• Statista predicts that transaction value is expected to show an annual growth rate (CAGR 2023–2027) of 2.46% resulting in a projected total amount of US$1.21bn by 2027.

• Crowdfunding added $65 billion to the worldwide economy, according to Fundly.

Trends in crowdfunding projects

Here are some market trends to pay attention to: 

• Social media crowdfunding: Raising capital for small projects through social media channels in the initial stage or after the MVP launch.

• Direct-to-consumer crowdfunding: This trend is driven by the increasing popularity of direct-to-consumer brands, which use crowdfunding to connect with their customers and raise money for new products and projects.

• Micro-donations: This is a great solution for young people searching for ways to get involved in crowdfunding projects but who do not have significant financial means.

• Cryptocurrency crowdfunding: This is a relatively new trend that allows projects to raise money through cryptocurrencies, such as Bitcoin or Ethereum, adding more transparency and security to the fundraising process.

Crowdfunding website features

Even though your platform should be unique, users will expect a certain list of features on a crowdfunding website, including a welcome page, registration, user account, and customer support. However, different user roles require specific features. 

For fundraisers

Crowdfunding platforms often have specific features and tools that are designed to appeal to fundraisers. These features can include:

• Campaign management tools: Platforms may have tools that allow fundraisers to create and manage their campaigns, including setting funding goals, creating rewards for backers, and tracking progress.

• Customizable pages: Some platforms allow fundraisers to create custom pages for their campaigns, including the ability to add images, videos, and other multimedia content.

• Promotional tools: Platforms may have tools that allow fundraisers to promote their campaigns, including social media integration and email marketing tools.

• Analytics: Platforms may provide analytics and metrics that allow fundraisers to track the performance of their campaign and gain insights into how to improve it.

• Payment processing: Platforms may have built-in payment processing systems that allow fundraisers to accept contributions from backers.

• Rewards management: Platforms may have tools to help fundraisers manage rewards for backers, such as tracking fulfillment and shipping.

• Investor relationship management tools: Platforms may have tools that allow fundraisers to manage relationships with investors and supporters, such as sending updates and communicating with them.

• Investor accreditation: Platforms may have an investor accreditation process that allows fundraisers to verify that their investors are accredited or qualified investors.

For investors

Yes, investors can benefit from crowdfunding. Platforms do everything to attract backers and keep them satisfied. Specific features for investors can include:

• Investment tracking: Investors can track their investments and see updates on the progress of projects they have supported.

• Communication tools: Platforms may have built-in messaging systems or forums that allow investors to communicate directly with project creators and other investors.

• Risk assessment tools: Some platforms may have tools that help investors evaluate the risk of different projects, such as financial projections or market analysis.

• Investment syndication: Some platforms allow investors to co-invest in projects with other investors or pool money together in order to fund larger projects.

• Investment management tools: Some platforms may have tools to help investors manage their portfolio of investments, such as automated investment tracking and reporting.

• Due Diligence materials: Some platforms may provide detailed information on the company, team, and industry to help investors make informed decisions.

• Exit strategy: Some platforms may provide information on the exit strategy of the company, such as an IPO or acquisition, to help investors understand the liquidity options.

It's important to note that not all platforms will have all of these features, and some platforms may have additional features not mentioned above. Before launching a campaign, it's important to research the features of a platform and ensure that it offers the tools and services that will best serve your fundraising needs.

Main crowdfunding website challenges

Developing a crowdfunding platform is a complex task, and as with any complex task, there are risks and factors to consider: 

• Building trust

Fundraising is the primary goal of project creators when starting a crowdfunding website, and this is only possible with the trust of donors. Donors must have a clear understanding of where their money is going and how it will be used.

• Ensuring privacy and security

Handling large sums of money requires a high level of security and privacy. A secure protocol, such as a simple SSL certificate, is essential for protecting personal data and money transfers.

• Complying with legal regulations

Even though crowdfunding is a relatively new business area, governments have established legal frameworks to regulate it and prevent any abuse. It’s a must for a crowdfunding platform to obtain legal status, which allows them to raise more funds and invest in legal structures.

• Preventing fraud

Investment of funds through online platforms can leave donors vulnerable to fraud since there is no personal contact between the funders and the creators of the project. The platform should provide accurate and transparent information about the project and its creators on the website. 

A step-by-step guide on crowdfunding platform development

Well, now to the main part—the steps you need to complete to develop a full-fledged crowdfunding platform. During our seven years in business, we have created an efficient strategy you can follow to make your project a success:

1. Define your business model: Before you start building your crowdfunding platform, it's important to define your business model and determine how you will generate revenue. Will you charge a commission on each successful campaign, offer paid advertising or sponsorships, or charge for additional services?

2. Complete a discovery phase: Conduct market research to understand your target audience, the competition, and the legal requirements for your jurisdiction. This will help you identify opportunities and potential challenges.

3. Choose a technology stack: Select a technology stack that will help you build a high-performance web service. We will talk about this in more detail below.

4. Develop a prototype: Create a prototype of your platform, including the layout, navigation, and key features. This will help you to visualize the final product and identify any potential issues before development starts.

5. Design and develop: Based on the wireframes and prototype, start designing and developing your platform. Make sure to prioritize user experience and design, as well as security and compliance. Also, we recommend starting with a minimum viable product (MVP). An MVP will help you validate your idea and get a clear vision of the path forward.

6. Test and launch: Before launching your platform, it's important to test it thoroughly to ensure that it's functional and user-friendly. Once it's ready, launch your platform and start promoting it to potential users.

7. Monitor and update: Keep track of the performance of your platform and gather feedback from users. Use this feedback to make updates and improve the platform over time. 

The best tech stack for a crowdfunding platform

When it comes to developing a crowdfunding platform, choosing the right technology stack is crucial. Here are a few popular tech stack options that are well-suited for crowdfunding platforms:

• LAMP (Linux, Apache, MySQL, and PHP): This is a popular open-source stack that is well-suited for building web-based applications. It offers a good balance of performance, scalability, and cost-effectiveness.

• MEAN (MongoDB, Express.js, AngularJS, and Node.js): This is a full-stack JavaScript solution for web apps. It offers good performance, scalability, and flexibility, and it's easy for developers who are familiar with JavaScript to work with.

• Django: This is a high-level Python web framework that enables fast development and clean, pragmatic design. It is well-suited for complex web applications, has a built-in admin interface, and comes with an ORM.

• React Native: This is a JavaScript library for building mobile apps that allows you to build a mobile app for both iOS and Android with one codebase. This can be useful if you want to develop a mobile app version of your platform.

Ultimately, the best tech stack for a crowdfunding platform will depend on the specific requirements of your platform and the skills and experience of your development team. It's important to consider factors such as performance, scalability, and ease of use when choosing a tech stack. It's also important to work with a reputable development team that has experience building crowdfunding platforms and can help guide you through the process.

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How much does it cost to build a crowdfunding website?

The final cost of a crowdfunding platform will depend on several factors:

• Team composition

Depending on your solution’s specifications and scale, you may need various specialists to complete the project. A minimum team will include backend engineers, frontend engineers, UX/UI designers, QA engineers, and a project manager. Additionally, you may need security managers, business analysts, and software architects. 

• Tech stack

We already mentioned several technology stack options for you to choose from. However, they differ in price. You should talk to your development team and decide which one to choose.

• Feature list

The features mentioned above are not the only ones you can include in your crowdfunding platform. There can be more of them depending on the niche and target audience. The list of features will also affect the development costs.

• Team’s location

The hourly rate for the development team varies from region to region. Countries like India and the Philippines are known for their large and relatively low-cost tech talent pools. In contrast, the cost of software development is typically higher in countries like the United States, Canada, and Western Europe.

On average, the full development cycle of a crowdfunding platform can be anywhere between $100,000 and $250,000. The final cost may vary based on the capabilities and needs of the team (or specialist) implementing the project. You can contact our team to get a detailed estimate on the project.

Crowdfunding platform monetization strategies

We know how much money you will need to spend to build a crowdfunding platform, and now we need to figure out how to make money out of it. The most efficient strategies include paid features, commissions, ads, and promotion.

• Paid features: A crowdfunding website can offer advanced features or special services that users can pay for, such as branding or content creation services. Additionally, you can offer fundraisers extended profiles that display advanced campaign statistics.

• Commission: Creators do not pay anything before their financial goal is met, so the platform only receives a fee if the campaign is successful. The average fee is 5%, but it can range from 2% to 20%, depending on certain conditions.

• Advertising: You can provide space on your website for various types of ads. However, try not to annoy users with ads since you risk losing your audience.

• Campaign promotion: A crowdfunding website can allow creators to highlight their projects for better visibility, which can be profitable for both parties.

Our expertise

We worked closely with the crowdfunding industry and helped one of our clients create a platform for creative enthusiasts. Our clients wanted a powerful solution that could help talented people realize their dreams. As a result of our cooperation, there is now a working crowdfunding platform with an eye-pleasing design and a rich feature set.

Summary

Crowdfunding is a positive and effective way to help people reach their goals. However, building and running your own crowdfunding platform can be a resource-consuming activity. To create a successful service, you will need to conduct detailed research on the market, choose what business model to work with, and ensure your solution appeals to the audience. This will help you stand out from the crowd and create a perfect crowdfunding platform.

Yellow is an experienced fintech development service provider that can help you build a high-quality crowdfunding platform. Drop us a line so we can discuss your idea in more detail.