The power of crowdfunding

How to successfully raise capital from the crowd

Considering crowdfunding to raise capital? Harnessing the power of the crowd to fund your venture can be challenging—but if you get it right, crowdfunding can provide early market validation for your ideas, a dedicated customer base and critical capital to scale up and turn your innovative vision into reality.

While venture capital and angel investments have been the go-to sources of capital for entrepreneurs, these options often only target larger funding rounds and can come with hefty terms that include giving up some control of your business. Crowdfunding sidesteps traditional investor routes by raising smaller amounts from a much wider public network in exchange for rewards, equity or simple gratitude.

Rather than captivate a few deep-pocketed investors for funding, here’s how you can raise capital from the crowd through the power of platforms, passion and persuasion.
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Crowdfunding models

There are several models of crowdfunding each offering a different incentive for entrepreneurs, investors, and donors. Depending on your ultimate business and financial objectives, these models provide various solutions to help align capital sourcing with your goals.

Donation-based crowdfunding involves donors supporting causes, organisations or community efforts without the expectation of a tangible reward or equity stake—just a thank you will suffice. Sites like GoFundraise and GoFundMe have enabled Australians to raise money for many important causes. Donation models are very common for social upliftment, educational and community projects.

Reward-based crowdfunding is when pledgers receive non-financial rewards like a product or service—usually the one being funded—in exchange for their pledge. Kickstarter helped popularise this model, allowing Australian creators to fund projects like films, inventions, and artistic works. Pozible is one of the largest local reward crowdfunding platforms.

Pre-sales crowdfunding is a variation where backers essentially pre-purchase a product that is still in development—sites like Indiegogo employ this model. It offers flexibility if projects exceed their goals. In New Zealand, Boosted has emerged as an influential crowdfunding platform for artists to test product demand and pre-sales.

Debt-based crowdfunding connects those seeking small business loans or personal loans with individual and institutional lenders. Sites like Plenti and SocietyOne operate in this space in Australia. Borrowers repay the loan amounts with interest.

Equity crowdfunding involves the online sale of securities (company shares) to crowds of individual accredited investors—meaning they can buy a stake in startups. Some equity crowdfunding platforms operating in Australia include Equitise and OnMarket.

Hybrid models that blend reward perks with equity stakes are also emerging as a popular option for Australian entrepreneurs to creatively engage backers. Platforms that offer hybrid models include Birchal and StartSomeGood.

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The benefits and limitations of crowdfunding

A key benefit of crowdfunding is the democratisation of entrepreneurship—meaning startups no longer need to solely rely on banks or large investors to raise capital or scale up. Crowdfunding opens up a large network of funding possibilities particularly for underrepresented groups and locations outside major cities that struggle to access traditional sources of capital.

The open and viral nature of crowdfunding also helps build trust with backers through transparent processes on how funds are used. That isn’t all though—running a successful crowdfunding campaign proves there is an audience and market for your product or service and will act as a proof of concept, potentially opening up further financing opportunities.

However, there are limitations. Not all projects will resonate sufficiently to reach their goals. Campaigns require extensive promotion, and failures waste time and can damage reputations. Relying on crowdfunding as the sole means of larger business funding can leave gaps.

For investors and donors, risks exist due to lack of due diligence compared to regulated markets, and failures to deliver on promises damage the ecosystem. Despite safeguards, some funds procured through equity crowdfunding have been lost—emphasising a need for investor education.

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Tips when raising capital from the crowd

Here are some of our best tips to harness the power of the crowd and get one step closer to funding your venture:

Craft a captivating origin story that stirs souls and inspires strangers to open their wallets. Paint a captivating picture and share your big vision in a way that touches people and makes them want to join your cause.

Offer perks that match the level of contribution. This can incentivise and recognise your backers support. Remember to always remain authentic—don't over promise on perks you can't deliver.

Activate your network by asking friends, family and early fans to spread the word and contribute—don’t be shy. Optimise all your marketing channels and engage influencers to build awareness and buzz.

Remain radically transparent, updating backers regularly on progress, setbacks and every dollar spent. Honesty builds trust that fuels future contributions.

Make contingency plans in case your campaign falls short of goals. While crowdfunding can prove market interest, full funding isn't always guaranteed. Use what you learn from backers to pursue other capital sources too. Remain flexible so you can either launch as intended or make sensible adjustments if crowd support isn't enough on its own.

Enter with realistic expectations and focus on building genuine connections over brief transactions. Long-term community relationships are valuable for any venture seeking lasting support.

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Australians and crowdfunding

While still in its relative infancy, crowdfunding is steadily growing in popularity among Australian entrepreneurs. The ease of use and lower barriers to entry of platforms like Kickstarter, Indiegogo and Pozible resonate well with Australians.

In 2020 industry reports indicated Australian platforms raised a combined $46 million—a 125% increase from the previous year. By 2022, a total of $219 million had been raised across 298 offers, with an average deal size of $733,000. Australia’s dominant crowdfunding platforms, Birchal and Equitise, had raised $32 million by the close of Q2 2023.

As Matt Vitale, CEO of Birchal shares, "Being an entrepreneur is a hard, and sometimes lonely job. What I’ve observed over the last five years is that investment crowdfunding is really about building communities around entrepreneurs. For those that do it well, you get the capital you need, but perhaps more importantly an army of ambassadors to support you at the same time.”

Crowdfunding has created 270,000 jobs worldwide and added $65 billion to the global economy—it’s expected that, by 2025, the global crowdfunding market will be worth $300 billion.