Types of crowdfunding platforms
Crowdfunding platforms vary widely in the way that they are structured. Here's an overview of these different platforms and the fee structures they use for their services.
Some crowdfunding platforms only offer one crowdfunding model (e.g. the Donation Model) while others may offer a choice of options among different models or offer a hybrid model that combines elements from one or more of the three key models. For example, Fig blends donation-and equity-based crowdfunding.
In 2016, there were 78 crowdfunding platforms in Canada, mostly donation-based.
There are three main types of crowdfunding platforms:
- Specialized platforms: Certain crowdfunding platforms cater to specific industries such as music recording, video games, or independent television.
- Activity-specific platforms: Many platforms cater to a variety of industries but focus on certain types of projects (e.g. creative projects, technology or hardware development).
- General Purpose platforms: General purpose platforms have no restrictions on what they will feature. These platforms feature campaigns that range from individuals soliciting support for a medical procedure or a wedding to artists seeking to fund creative projects and technology start-ups seeking to fund the development of a new innovative product.
Project can also chose to set up their own Do-it-Yourself (DIY) platform on their own website or a purpose-built site. Creators who choose to go the DIY route can either build their own system from scratch or they can purchase an out-of-the box crowdfunding software. The DIY approach requires a great deal more administrative effort from the project creator, but allows them to engage directly with their supporters (rather than going through a third-party platform) and means that 100% of the funds raised go to the creator without having to pay a commission to the platform operators.
There are two ways in which crowdfunding platforms typically structure the allocation of funds:
- The All-or-Nothing model. The project owner only receives funds if the original funding goal is either met or surpassed within the pre-determined funding period. In the event that the project does not meet its funding goal, contributors are either reimbursed or their pledges are never fulfilled (i.e. credit cards or other payment accounts are never charged).
- The Keep-What-you-Earn model. Any and all funds raised during the funding period are transmitted to the project owner regardless of whether or not the original funding goal is met.
Some crowdfunding platforms only use one fund allocation structure while others may offer a choice between the two structures, although there may be different commissions or fees associated with each structure.
Crowdfunding platforms also use a variety of fee structures for the services they provide:
- Commission: Platform operator takes a commission on funds raised when funds are awarded typically ranging from 2-5%.
- Subscription: Platform operators offer a monthly or yearly subscription to their services for a fixed fee, which allows users to host a pre-determined number of projects on the platform over a fixed period of time.
- Flat fee: Project owners are charged a pre-determined fixed fee by the platform operator in exchange for the service of housing their campaign on that platform’s website.
Many platforms also charge an additional payment processing fee to project owners, which they pass on from third-party payment partners (e.g. PayPal) or credit card companies. These fees generally take the form of a percentage of “sales” generally in the range of 2-4%.