There are lots of kinds of crowdfunding–starting with asking for donations to selling stock in your company.  Clearly asking for donations is going to result in a lot less money than offering a discount for pre-ordering a product or selling shares of stock.

There are a lot of sources of information on the success rates of crowdfunding, and much of it aggregates a huge number of campaigns across a broad range of approaches.  These tell you that somewhere between 25% and 40% of campaigns are “successful”–meaning they raised money, maybe not as much as expected, but something.  And that is a pretty good success rate.  The average raise in this aggregation is about $7,000.

You might ask why do people bother for so little money?  Because these statistics cover up the important details.  The vast majority of crowdfunding campaigns are asking for donations–for a big birthday party, for someone’s surgery, to buy desks for schools in Africa, for paying expenses for a school band to travel to a contest.  These typically raise only a few thousand dollars at most.  They don’t reveal what happens when one uses crowdfunding for business.

Results for businesses are better than those averages.  Donation-only campaigns for business are a little tricky because one will need to establish a pretty compelling story about giving money to a business for next to nothing in return.  Sometimes it is for a small reward like a shirt or coffee mug.  Sometimes it is linked to raising money for installing a product to benefit someone in need.  Sometimes it is a promise of a discount on the eventual product if and when it is finished.  In these circumstances it is possible to raise over $10,000 routinely, and $25,000+ is clearly possible.  The better the reward, the higher the amount raised.

Selling shares is even a more compelling reason to write a check, but can entangle one in a lot of requirements for reporting, disclosure, and limitations on the number and kind of investors from which money can be accepted.  It also requires a lot of work to make a compelling case.  But in these cases raising $1-5 million is common for successful campaigns.  The failure rate for these offerings is also higher than for the simpler donation campaigns.  

Compared to the success rate of trying to win a prize of $50-100,000 in a business plan competition, or looking for money from venture capitalists, crowdfunding can be a much better source of capital for a business.  That’s why people bother.  It is something that they feel is more under their control and has a better chance of success.  Crowdfunding also tends to focus a start-up on making the case to customers more than just to investors, something that could be much more important to long-term success.

Want to learn more?  CleanStart is stepping up to provide help to tech startups that face this money-raising conundrum with a new series of classes launching on June 20th. Leveraging Crowdfunding to Fuel Your Tech Startup