Crowdfunding For Startups: 8 Tips For Launching

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startup crowdfunding

For a people who revere startup culture and the idea that one can bootstrap one’s way to business success, we seem to prefer the TV version to the real thing — especially as of late. It turns out that new business creation recently approached its 40-year low. Banks are retaining their Great Recession-era tight-fistedness and the costs of education, housing and healthcare continue daily to expand beyond the ability of most Americans to keep pace. Frankly, our veneration of the entrepreneurial spirit does not appear to extend to supporting policies that would actually increase people’s ability to take the financial risks required to start their own business.

Due to these factors — along with the legalization of equity crowdfunding accomplished via the passage of the JOBS Act in 2012 — crowdfunding has arisen as a means of raising startup funds. You may only be familiar with crowdfunding in the context of all the medical- and disaster-based campaigns that have been making the news lately, but crowdfunding is a viable way to raise money for businesses as well.

The fact is, for the right kind of new enterprise, a crowdfunding campaign can be a great way to raise a much-needed initial infusion of capital. The biggest crowdfunding site for startups, Kickstarter (see our review), has seen over $3.4 billion USD raised by product-oriented business projects. To be fair, this money didn’t just fall into the laps of the startups in question. Crowdfunding takes some work to get right. However, it’s hard to imagine that the campaigners who raised that $3.4 billion could have raised that same sum via conventional means.

Just know that you’ll have a lot of competition for those crowdfunding dollars. You need to go into it with more than just a good story (not to discount the value of a good story!) — you’ll need to tailor your campaign to suit your particular enterprise, and you’ll need to give your potential backers a personal stake in supporting you with the promise of rewards, profit, or both.

Here’s what you should do to prepare before you begin.

Table of Contents

1) Learn Which Type Of Crowdfunding Suits You Best

If you know anything about non-charitable crowdfunding, you’ve likely heard of Kickstarter and its rewards-based crowdfunding model. What you might not be aware of is that Kickstarter is but one method of crowdfunding available to startups.

Rewards Crowdfunding

Rewards crowdfunding is what most people think of when they hear the term “crowdfunding.” Along with Kickstarter, Indiegogo (see our review), Patreon (see our review), and GoFundMe (see our review) are examples of popular platforms offering rewards crowdfunding. I’ll get into the differences between these platforms later on, but suffice it to say, these platforms generally involve raising money from The Crowd in exchange for rewards that are directly related to your startup’s mission. The platform will then take a cut of what you raise (except in the case of GoFundMe).

Equity Crowdfunding

Equity crowdfunding is a different beast entirely. The field of equity crowdfunding is a new one. It was legalized by the JOBS Act, which was signed into law in 2012 and whose provisions have gradually taken effect over the last few years. The JOBS Act was seen as a way to facilitate greater access to capital in the wake of the 2008 financial crisis.

Equity crowdfunding differs from traditional rewards crowdfunding in that instead of backing a project in exchange for exclusive illustrations or a gadget or tickets to a performance, backers become investors who receive an ownership stake in the company. Investing is much more heavily regulated than rewards crowdfunding, so it’s a more legally complex way of raising funds than using Kickstarter. What’s more, the JOBS Act provides for two similar yet distinct forms of equity crowdfunding: the type in which you raise money from accredited investors only (which basically means rich people) and the type in which you can raise money from non-accredited investors (everyone else). Most equity crowdfunding platforms, including Crowdfunder (see our review) and Fundable (see our review), offer equity crowdfunding for accredited investors only, while a few upstart companies like Wefunder (see our review) offer equity crowdfunding for all (sometimes referred to as Regulation Crowdfunding).

Debt Crowdfunding

Debt crowdfunding, like equity crowdfunding, involves investing in a security of the company in question. However, with debt crowdfunding, the investor is a lender who gets paid back on a fixed schedule with interest. From the perspective of a startup, getting into debt crowdfunding means you’re borrowing money — not from a bank, but from a crowd of investors. Kiva U.S. (see our review), Lending Club (see our review) and Prosper (see our review) are all prominent debt crowdfunding outfits.

If you’re wondering which of these three types of crowdfunding best fits your startup, here’s a quick rundown for you:

  • Rewards crowdfunding is best suited to startups in the business of producing content for people to consume. Artists, gadget makers, podcasters, filmmakers, and board game producers have all made good use of rewards crowdfunding.
  • Equity crowdfunding makes sense for startups with exponential growth potential that do not produce a singular product or experience to share with a crowd of backers.
  • Debt crowdfunding is for startups that need cash for a defined purpose and that have the ability to pay back the loan.

For more information on the subject, I recently wrote an article comparing and contrasting these three types of crowdfunding. Check it out!

2) Research Different Platforms To Understand Their Differences

Simply knowing the difference between the three varieties of crowdfunding doesn’t provide enough information for you to settle on a platform. For one thing, crowdfunders like Indiegogo and Fundable offer both rewards and equity crowdfunding. For another, the terms, fees, content policies, and even the structure of the crowdfunding campaigns themselves differ from platform to platform.

For instance, you might be trying to raise funds to build your own board game company and have your sights set on Kickstarter. However, Kickstarter is a more exclusive platform than most rewards crowdfunders — it might not accept your campaign proposal. What’s more, you might find Kickstarter’s all-or-nothing funding policy intimidating. With all-or-nothing funding, if you raise less than your stated goal amount during the length of your campaign, you get nothing at all. You might find a platform like Indiegogo more to your liking, as Indiegogo accepts any campaign that doesn’t violate its rules while allowing you to collect whatever you raise with your campaign regardless of whether you’ve hit your goal.

Let’s say you’re an artist collective seeking to put on monthly art exhibitions. The Kickstarter/Indiegogo fundraising-for-a-one-time-event model of crowdfunding may not be for you. You might find Patreon to be a better fit. With Patreon, backers (or “patrons”) sign up to support you on an ongoing basis, either per month or per creation. You won’t have to gin up a new crowdfunding campaign every time you want to start a big project.

Likewise, equity crowdfunders vary greatly in their policies — SeedInvest (see our review), for example, boasts of only accepting 1% of those who apply to crowdfund on its site, whereas EquityNet (see our review) accepts any startup applying to use its services.

3) Check Out Other Crowdfunding Campaigns To See What Works (And What Doesn’t)

When you’re raising money via crowdfunding, you have one big advantage over those trying to raise money via other means. If you’re applying for a bank loan, you don’t get to browse through every loan application ever submitted to the bank or view the result of every application. But with crowdfunding, in most cases, the data is there for everyone to see!

Kickstarter is typical for a crowdfunding site in that every campaign ever posted to its website is left up permanently, regardless of whether the campaign succeeded or not. For the creator whose ridiculous campaign never really got off the ground, this permanent record of failure may not seem like such a boon. However, if you’re a startup looking to identify patterns in past crowdfunding campaigns that correlate with success — as well as patterns that correlate with not-success — this data is quite valuable indeed. I would strongly advise you to make use of it! Don’t be too proud to emulate what has been shown to work.

4) Be An Intensive Self-Promoter

If you’re the modest, retiring sort who spurns self-promotion, get ready to change your approach  — that is, if you want your campaign to succeed. Spend some time promoting your startup’s cause before taking the crowdfunding plunge (Indiegogo recommends at least two months of prep time before launch).

Do the legwork necessary to build up your social media following before starting your crowdfunding campaign, so that when you launch your campaign, you’ll have a built-in audience that is already receptive to your message. Contact journalists who cover your field. Build an email list. Consider buying ads on Facebook or Twitter to promote your campaign. Unfortunately, with crowdfunding as with so much else in our fallen world, you have to spend money to make money.

Remember to tailor your self-promotional efforts to fit your audience. If you’re looking to conduct business with accredited investors, a hard-nosed, data-focused approach may bear more fruit than a flashier look-how-cool-we-are campaign.

5) Create A Professional Video

I suppose I could have included this point in the previous section, but I think it deserves to be emphasized on its own. According to Kickstarter, posting a video to go along with your campaign increases your likelihood of ultimately succeeding from 30% to 50%.

Here’s another example of “spend money to make money” — a professional video with decent production values will make your potential backers more confident in the potential of your enterprise than something produced on the cheap. I’d love to live in a world where one could devote all one’s energies towards their true passions and not have to set aside time and resources for salesmanship, but we don’t live in that world. So, make a video. Keep it to just 2-3 minutes. You can get personal, but make sure to hit all your main points about your startup and its potential. Don’t forget to mention the benefits backers stand to earn!

6) Get Commitments From Backers Before Launching Your Campaign

It might not be fair, but it’s not easy to attract backers when your campaign first launches. An adverse first impression can easily dissuade someone from contributing to your campaign, and seeing “$0 pledged” next to your project can be enough to cause a prospective backer’s wallet to close. That’s why it’s important to line up commitments from backers before your campaign launches.

Time to make your family and friends prove their love to you by securing their backing before your campaign goes live! Gather commitments from your followers as well. Remember how I mentioned that you should build an email list of potential backers? Here’s where you can put that list to good use. Email your followers immediately when your campaign goes live. Get some pledges early and it will be all the easier to get subsequent commitments from backers. Data provided by Kickstarter backs this up — while their overall project success rate is just a hair under 36%, projects that raise over 20% of their goal have a 78% success rate.

7) Don’t Be Afraid To Use Analytics

The use of analytics is the only way you’ll be able to tell just what kind of traffic to your campaign page is converting to pledges. Use whatever analytical tools are available to see where your pledges are coming from and how you can boost them.

For instance, Kickstarter’s Project Dashboard gives you access to a trove of data regarding exactly where your backers are coming from. This data is invaluable when determining where you should focus your marketing.

kickstarter

8) Stay In Touch With Your Backers

Show your backers that you respect them by staying in touch with them. Keep them updated on your progress. After all, these are people who made a financial commitment to you knowing that there’s no guarantee that your plans will come to fruition.

Monitor social media chatter related to your campaign to see if particular concerns pop up repeatedly. If so, do what needs to be done to address these concerns. After all, you’ll want to stay in their good graces if you want to launch another crowdfunding campaign in the future!

Final Thoughts

Crowdfunding doesn’t work out for every startup that tries it. If you do your due diligence, however, you greatly increase the likelihood that your campaign will reach its funding goals. Follow these tips, and you’ll have a fighting chance to get the funding you need so that you can ultimately focus on growing your startup, not on fundraising!

Jason Vissers

Jason Vissers is a writer, cereal chef and Netflix aficionado from San Diego. A native Californian who enjoys the beach, Jason nonetheless prefers to do his surfing on the World Wide Web, the raddest wave of them all. Jason can’t eat raisins.

Jason Vissers

“”

5 Patreon Alternatives

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patreon alternatives

For a wide array of podcasters, YouTubers, writers, journalists, artists, comedians, and other creatives, Patreon (see our review) has provided a convenient means of monetizing output that was previously unavailable. Patreon’s conception of crowdfunding, based as it is on ongoing donations from patrons in exchange for exclusive content, is well-suited to those who produce works that people enjoy but who previously had no means by which to get compensated for their toil.

However, if you’re on the lookout for an alternative to Patreon (as are many Patreon creators ever since Patreon introduced — and then rescinded — their unpopular new fee policy), there are several other good options. Let look at some of them!

Table of Contents

1. Kickstarter

I’m sure I don’t have to explain to you what Kickstarter is. You’re also likely aware of the fact that Kickstarter (see our review) crowdfunding campaigns do not operate on Patreon’s recurring subscription-like model. However, if you’re a creator whose focus is on putting out, say, a few major works per year — as opposed to a continuous stream of content — Kickstarter may work for you. You can always launch a new Kickstarter campaign after your old one runs its course.

Kickstarter vets crowdfunders fairly strenuously, so not everyone gets in. It’s a more exclusive platform than most of its rewards crowdfunding peers, which is a factor to consider if you’re a small-time creator. But with nearly $3.5 billion in dollars pledged to Kickstarter campaigns — and over 136K successfully-funded projects — Kickstarter’s track record is nothing to sneeze at.

One thing to keep in mind about Kickstarter campaigns is that the funding is all-or-nothing. If you don’t raise your goal amount within the time frame you specify (anywhere from 1 to 60 days), you get nothing — no soup for you. Launching a Kickstarter campaign requires a certain degree of confidence in your ultimate success.

As for fees, Kickstarter and Patreon don’t differ a great deal in this respect. Both Kickstarter and Patreon take a 5% cut of what you earn, with payment processing fees taking upwards of 3% of the rest.

2. Indiegogo

Indiegogo (see our review) is another alternative consider, and while it has a lot in common with Kickstarter, there are some key differences.

Like Kickstarter, Indiegogo crowdfunding campaigns are not continuous and have concrete start and end dates. Unlike Kickstarter, however, Indiegogo doesn’t pre-screen the campaigners who sign up to crowdfund, making it a less exclusive platform for creatives. Indiegogo also gives you the choice of whether you want your campaign to be all-or-nothing or keep-whatever-you-raise in its structure. With the latter, you won’t be left with nothing if your campaign fails to reach its funding goal.

The maximum campaign length with Indiegogo is 60 days. Indiegogo’s fee structure is nearly identical to that of Kickstarter and Patreon — 5% to the platform, ~3% to the payment processor.

Think of Indiegogo as a slightly more relaxed Kickstarter.

3. Donation Buttons

Here’s a crowdfunding solution that ensures you won’t have to pay a 5% platform fee to anybody: You can just directly solicit donations from those who enjoy your work. Payment providers like Stripe (see our review) and PayPal (see our review) have buttons you can place on your site for just this purpose.

These payment providers allow people to make recurring payments, so your fans can sign up to support you on a continuing basis (just as with Patreon). Of course, you won’t be getting any of the extra crowdfunding services you’d get with Patreon (reward distribution, patron management, analytics, etc.), so this funding solution will require more of your time and energy than Patreon. Then again, you’ll get more of every pledge made to you. If you have an existing fanbase motivated to pay up for your content and the ability to manage everything manually, this may be a crowdfunding route worth exploring.

Now, let’s take a look at a few crowdfunding sites that share Patreon’s subscription-based crowdfunding model.

4. Podia

Formerly called Coach, Podia isn’t one of the better-known crowdfunders out there — in fact, they’re new to the crowdfunding game, having just launched their new Patreon-like Membership service a few weeks ago (I’m writing this in December 2017). Prior to this, the site — then known as Coach — was simply a service with which people could sell online courses and digital downloads as standalone purchases.

Podia is keen to invite comparisons between themselves and Patreon — in fact, they’ve put up a page on their site devoted to showcasing themselves as a superior Patreon alternative. Their main selling point is this: Podia charges no fees on the donations your contributors make. Instead, you pay a flat monthly fee to use the service. You’ll have to pay $79 per month for the Membership package and $39/month if you just want to sell online courses/digital downloads and use Podia’s email marketing services. If you can draw a significant monthly income from selling access to your work, you’ll be paying less in fees with Podia than with Patreon. However, if you pull in just a few hundred bucks a month or less, Podia is clearly not a more cost-effective crowdfunding service than Patreon. It all depends on the level of support you get from your followers.

5. Memberful

Memberful is a decidedly different way to make money from your work. It’s not a crowdfunding platform, but rather a plugin you install on your website through which you sign people up for subscriptions to receive exclusive content. You can set up the application to accept subscriptions for different lengths of time (monthly, yearly etc.) and for different subscription plans that give access to varying levels of content.

If you sign up for Memberful’s Starter plan, you won’t pay any monthly fee, but Memberful will take a whopping 10% of what you earn — and that’s before you get to the payment processing fees. Memberful’s Pro and Enterprise plans cost $25 and $100 per month (respectively) while cutting the platform fee down to 2% and 1% (respectively). Both give access to features like coupon codes and newsletter integrations. Memberful isn’t a funding solution for everybody, but for the right sort of creator, it may be worth checking out.

Coming Soon: Drip

I would be remiss if I didn’t mention Kickstarter’s new Patreon-like subscription-based crowdfunding platform, Drip. Drip is still invitation-only at this point, so we’re still waiting for a proper release. However, given that it has the weight of Kickstarter behind it and is clearly Kickstarter’s response to Patreon’s popularity, I expect it to become Patreon’s main rival when it becomes open to everybody. Details are scarce at this point, but Drip promises to integrate with Kickstarter so the 13.7 million backers currently on Kickstarter can use their login details and payment info to start backing Drip projects without having to set up a new profile. They also promise that Drip campaigns will feature a “founding membership period” during which backers will be designated “founding members” and get special perks for jumping in early. It’s an intriguing way to get people motivated to support you during your campaign’s early days.

Few details are available, but when Drip is released to the general public, I’m going to try to be the first person to post a review of it. Stay tuned!

Final Thoughts

Monetizing your work online has long been a challenge. Thankfully, platforms like Patreon and its various alternatives have arisen to plug this market inefficiency and help creators make money from the very people who consume and enjoy their content. No single solution is right for everybody, so check out these platforms (heck, check out other ones too if you want!) to determine which funding model makes sense for your particular needs.

Now go forth, create, and get paid!

Jason Vissers

Jason Vissers is a writer, cereal chef and Netflix aficionado from San Diego. A native Californian who enjoys the beach, Jason nonetheless prefers to do his surfing on the World Wide Web, the raddest wave of them all. Jason can’t eat raisins.

Jason Vissers

“”

10 Tips For Building A Winning Patreon Campaign

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patreon success

It used to be that if you wanted to try crowdfunding as a means of monetizing your physical and/or creative output, you had to set up a campaign on a site like Kickstarter (see our review) or Indiegogo (see our review). That’s all fine and good — after all, these sites have raised billions in funding for creative business ventures of all kinds. But what if you want to crowdfund on a continuing basis and have your fans support you with monthly (or per creation) payments? Platforms like Kickstarter aren’t set up to facilitate that — not until Drip becomes open to all, at least.

Enter Patreon (see our review). Patreon enables you to draw an ongoing income from The Crowd by soliciting donations from patrons on either a per-month or per-creation basis. It’s an ideal crowdfunding model for podcasters, YouTubers, musicians, journalists, artists, and anyone else who creates content on a regular basis and would like to be compensated for it.

Just remember: Crowdfunding isn’t Field Of Dreams, and you’re not Kevin Costner. If you build it, they won’t necessarily come. You have to go in with the mindset that building up your Patreon is a job and your patrons are customers who will require content of value in return for their investment. Rewards crowdfunding isn’t charity — it’s business, albeit with a strong human element.

Here’s what you need to do to ensure you have the best possible chance at Patreon success.

(If you are, in fact, Kevin Costner, I apologize.)

Table of Contents

1. Have An Existing Fan Base

Some people may see popular Patreon creators who pull in several thousand dollars a month and come away thinking that Patreon built their fan base. This line of thinking gets it backward. Patreon is just a platform for your work — it’s not going to generate interest in what you do if the interest isn’t there in the first place!

A successful Patreon campaign requires that you have a base of potential patrons — not necessarily a huge base, but one that exists — who are already inclined to support you financially in exchange for access to your content. In reality, the path to being a winning Patreon creator starts long before you sign up with Patreon. Typically, people don’t browse randomly through Patreon creator pages looking for unknown creators to support. They seek out the campaigns of creators they already know and appreciate.

Before you start with Patreon, acquire a following of people who are willing to drop at least a dollar or two per month on your content. Otherwise, you’ll just be wasting your time.

2. Post A Video. Be Concise!

Building a personal connection with your followers is key in inducing them to open their wallets for you. There’s no more direct and efficient way to bolster this connection than with a killer video.

Don’t use your video to appeal to the consciences of your fans and plead for support on moral/charitable grounds. Regardless of the merits of such a case, it just doesn’t work. Approach your introductory video as if you were making an elevator pitch to investors because essentially, that is what you’re doing.

Appear personally in your video. Be passionate and sincere. Make sure to explain how the rewards system works and what patrons will receive at different tiers of support — some of your followers likely don’t know how Patreon works. Also, don’t post a video longer than three minutes (or so). People’s attention spans aren’t getting any longer.

gamer chair GIF

Nobody’s going to expect to see a video with Hollywood-level production values. Just be direct, sincere, and explain exactly what patrons will get in exchange for their support.

3. Examine Other Patreon Campaigns

If you’re trying to raise money by applying for a bank loan, you don’t get to study the loan applications of other applicants to see what works and what doesn’t. Crowdfunding platforms, however, are much more transparent. With Patreon, you can check out every active campaign on the site, along with the number of patrons each has acquired. And while creators don’t have to make their monthly (or per-creation) earnings public, about half of them do.

This is tremendously valuable information! Before you launch, do your homework and study the Patreon campaigns of other creators in your field. Take note of what characteristics successful campaigns have in common, along with the commonalities between campaigns that generate less interest.

This campaign data is too valuable to go unexamined. Take advantage of it!

4. Set Goals

With Patreon, you don’t have to set funding goals, but I highly recommend it. When you set a goal, you’re telling your patrons that you’ll be able to complete a certain project or make some campaign-related purchase once you’ve hit a certain level of funding. It’s both a way to demonstrate that you aspire to grow your operations and a way to inspire more patronage by letting people know what they stand to gain should your goals be met.

You can set as many goals as you like, but stick with a few at a time so as to not inundate people with information. Once you reach a goal, consider setting a new one so you’ll always have a few goals laid out in front of you. These goals can serve as inspiration for both you and your patrons.

5. Create Several Reward Tiers

In general, it’s a good idea to offer some kind of reward to patrons at the $1-$2 subscription level to appeal to the broadest possible swath of the populace. Many people divide their support among numerous Patreon creators at $1-$2 per month/creation, and you’ll want to appeal to this type of subscriber. However, you also want to set higher reward tiers for the bigger spenders, because a certain percentage of your supporters — and it can be a small percentage — will likely jump at the chance.

Patreon has posted data indicating that as your number of reward levels increases, so too does the chance that you’ll process at least $100 in your first month.

The key is to offer your potential patrons several options for supporting you in exchange for rewards so as to appeal to both the big spenders and the small spenders. Offer a lil’ something for everybody.

6. Promote Your Patreon On Social Media

If you have a social media presence and you’re not using it to promote your Patreon, you’re doing it wrong. People who know you and are familiar with what you do are more likely to support you. This goes back to my first point regarding tapping your existing followers for support.

You might be a bit squeamish about annoying your social media followers with requests for crowdfunding support. Do it anyway! Otherwise, you’re effectively leaving money on the table. Plus, if your campaign is unique or unusual enough, it might just go viral, thus getting you all the more attention — and more attention leads to more patron moolah!

7. Be Mindful Of Shipping Costs When Offering Rewards

It’s great to offer cool rewards, but if you’re not careful about who you’re offering physical rewards to, you could end up blowing your budget on shipping costs. This is particularly true if you have lots of overseas backers.

hovering stop motion GIF by Reuben Armstrong

Make sure that the rewards you offer at lower levels of support are either digital in nature or are the sort of thing that can be sent in a simple envelope. If you’re sending packages overseas to people who support you at $5/month, you may well find yourself in deep doo-doo.

8. Create Continuously

This one may be a bit obvious, but it’s true — particularly if your Patreon campaign offers per-month subscriptions. If your content releases are few and far between, patrons are going to realize they’re not getting much bang for their buck.

If you’re focused on offering major works a few times a year, platforms like Kickstarter and Indiegogo are probably better suited to you. Patreon’s crowdfunding model requires that you continuously release bits of content on a regular basis. If you’re building up to publishing a novel or something along those lines, you can always launch a Kickstarter/Indiegogo campaign and run it alongside your Patreon campaign.

9. Keep Creating Things For Non-Patrons

If you’re earning Patreon money for your work, that’s great. Just don’t make all your content exclusive to patrons. You want to continue to grow your casual audience and spread awareness of your work in order to expand the pool of people inclined to become a patron of yours in the future, and you can’t do that if you put everything behind the paywall.

Freebies make for good patron-bait. Give people just enough to leave them wanting more.

10. Send Patrons Personalized Messages (Particularly When Starting Out)

It always helps your cause to make your patrons feel loved and wanted, and while it may not be possible to send personalized thank-you messages to your every patron once you’ve hit it big, it’s definitely worth doing when you’re starting out. Patrons may feel like they’re taking a chance on you in your early days, so why not go the extra mile to thank them for having faith in you?

Show patrons some extra TLC when you’re starting out, and they’ll be more likely to stick with you. It’s just common sense.

Final Thoughts

It would be nice if good content sold itself. Unfortunately, with Patreon, just as in meatspace, this just isn’t how things work. You’ve got to be methodical and strategic when devising your Patreon campaign if you want to draw significant funding. Most people don’t have the disposable income to support every creator they like just out of the goodness of their hearts. You have to make your patrons feel emotionally invested in your success while simultaneously offering them tangible benefits in exchange for their patronage.

Remember, your followers don’t owe you anything. They’re struggling too! However, if you can enrich their lives with engaging content while making them feel as though they have a stake in your success, your Patreon campaign can be a winning proposition for everybody.

Jason Vissers

Jason Vissers is a writer, cereal chef and Netflix aficionado from San Diego. A native Californian who enjoys the beach, Jason nonetheless prefers to do his surfing on the World Wide Web, the raddest wave of them all. Jason can’t eat raisins.

Jason Vissers

“”

The Debate Over Patreon’s New Fee Policy: Who Benefits, And Who Doesn’t?

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patreon fees

When Patreon (see our review) announced a change in their fee structure, they touted it as a way to ensure that creators were paid a greater portion of what is pledged to them. However, many in the global creative community immediately perceived it as a threat to the viability — and thus the livelihood — of smaller creators on the site. What are the motives behind this change, and what will be its effect?

Table of Contents

The Change: Payment Processing Fees Will Now Be Assessed To Patrons

The simple way to summarize the change is to say that the payment processing fees charged in the transfer of funds from patron to creator will now be charged to the patron (rather than to the creator, as was the case in the past). But this broad explanation glosses over the specifics of how patrons will be charged, and it’s these specifics which lie at the heart of the issue.

Prior to December 18, 2017 — the day the new fee regime takes effect — Patreon’s policy was to charge the content creator for the cost of payment processing, deducting the amount from the earnings, which were bundled together and paid out once per month. This amount would vary, both month-to-month and creator-to-creator, because it depended on the number and amount of the individual pledges you received from your patrons, not the sum total of your patrons’ contributions.

As of the 18th, this all changes. Creators won’t be charged a fee for payment processing, and will instead pay only the 5% platform fee Patreon has always charged. Patrons will now be charged a 2.9% + $0.35 fee on each individual pledge they make to a Patreon campaign.

To those not involved in crowdfunding, the significance of this change may not be immediately apparent, and, in fact, it was initially presented by Patreon as an unalloyed good. According to the company’s much-criticised first statement, the change was made because it “allows Patreon creators to take home exactly 95% of every pledge, with no additional fees.”

However, here’s the thing. To charge a 2.9% + $0.35 fee to a patron’s every individual pledge adds a significant burden to patrons, most especially those who contribute a small amount — often $1 — to several different creators.

Seriously, though, it’s a big hit to small contributions! You might see the 2.9%, or even the $0.35, and think “well, that doesn’t sound like a big deal.” But the truly significant part is that this fee is charged to your every individual pledge and not assessed to your total monthly donation. This means every $1 pledge you make to a creator — whether monthly or per creation — will cost you $1.38. That’s a 38% fee you’re now paying on your donation, which sounds a lot worse than “2.9% + $0.35.” So if you contribute to, say, 20 different Patreons at $1/month each, you’ll now be paying $27.60 instead of $20.

This issue is especially acute if you run a per-creation Patreon. According to their FAQ explaining the changes, Patreon states the following:

As a per-post creator, your patrons will see the 2.9% + $0.35 service fee added to all paid posts. For example, if you are a per post creator making two paid posts per month, your patrons will be charged 2.9% + $0.35 for each paid post.

This means your $1-per-post patron will be paying $2.76 over the month for $2 worth of content, and not the $2.41 that would be assessed if the patron’s per-creation charges were bundled by month and then had the fee assessed. This disparity gets more pronounced the more prolific the per-post creator.

For the patron, it’s the aggregation of the per-pledge fees that is so insidious. This is particularly the case if you divide your giving into small amounts sent to many different creators, and less so if you give larger amounts to fewer creators.

The Criticism

Backlash was swift and unforgiving, ricocheting remorselessly down the weary corridors of social media. Many creators recognized this change as a massive new disincentive for patrons to spread their wealth, in the form of small pledges, among many different campaigners, with the new payment regime incentivizing patrons to concentrate their giving to fewer creators. The primary beneficiary of this change, according to many, is Patreon itself, not the majority of creators (and certainly not patrons). Crystallizing this view, a recent VentureBeat article quotes indie developer George Buckenham as describing the change like so:

This especially disincentivizes people pledging single dollars per month to multiple creators, which I assume they factored in and are happy with, in favour of people backing fewer projects for larger amounts of money.

The effects of the change are already being felt. Many Patreon creators tweeted screenshots of the canceled pledges they had already experienced, often accompanied by patrons giving the new fee structure as their reason for cutting back. Artist Blue Delliquanti noted in just such a tweet that they had already lost the equivalent of the cost of their dental insurance.

Artist/writer Josh Fruhlinger responded to the change by offering his $2-level patrons the chance to resubscribe at $1.60 per month for a unique reward to induce them to stay while paying roughly the same $2 monthly rate. Again, Patreon made this change ostensibly to benefit creators, yet now we see creators effectively cutting their own take just to keep their patrons from fleeing.

Yet another oft-heard complaint was that this change would be especially hard on non-US creators and patrons, considering the extra costs per transaction already incurred with the currency exchange, VAT, etc.

The Response

After the first wave of reaction, Patreon issued a further explanation of their new fee system through their payments product manager. The statement is an emphatic denial that the move is profit-motivated — “This was never (and still isn’t) about making more money for Patreon as a company.” Instead, they link the change to a change in the way patrons are going to be billed in the future. The explanation is complex, and I had to read through it a few times before I really understood it, but it boils down to the fact that Patreon wants to offer all creators the ability to get paid up-front when patrons subscribe to their content. This option has often been requested by creators who have to deal with the possibility of patrons signing up for their content and then canceling before the first payment is made.

However, when they let certain creators use a “monthly-with-charge-up-front” charging method, patrons were miffed. Because a patron’s monthly subscriptions are bundled and paid on the first of the month, a patron who signs up to support a creator with charge-up-front enabled on November 29th is charged a full month’s fee immediately, and then again on December 1st for the next month’s content. To prevent patrons from being effectively double-charged like this, Patreon wants to change the payment system to one in which each patron’s monthly subscription is paid on the monthly anniversary of the date on which they signed up with the creator in question.

But if they do this without changing the way payment processing fees are charged, according to Patreon, the cost of these fees will shoot up for creators and take a bigger cut of their monthly takes, because their patron’s payments will be spaced out over the month and not bundled and paid on the first of the month as before. They therefore justify the new fee system as a way to prevent this scenario from happening. They also added the fact that this new 2.9% + $0.35 was the lowest of the fee amounts they had experimented with during testing. “Be grateful we’re not making it even worse!” they seem to be saying.

As you can imagine, this response was not universally accepted.

Reaction To The Response

Many in the creative community, like author Natalie Luhrs, did not accept that soaking small donations with such a steep fee increase was the only way to make charge-up-front charging work. Several people pointed to another aspect of Patreon’s new billing practices which wasn’t addressed by the company in their “here’s why we did this” response but is mentioned in the FAQ page they put up to detail the changes. As things stand now, creators who are patrons of other creators can pay said creators out of their Patreon balance to avoid subjecting the funds in their balances to a second round of fees. However, according to Patreon,

We will likely be changing the way creator to creator payments happen in the future so that you will no longer be able to use your Patreon balance. One reason is that it causes many edge cases that add complexity to our payments system as work to roll out charge upfront over the course of 2018.

Of course, in smoothing out these “edge cases,” Patreon will just happen to collect more in fees as a result.

The Motivation And The Effect

Naturally, opinions differ on Patreon’s true motivation for enacting these fee changes. Natalie Luhrs pointed to this article, from June 2017, in which a Patreon employee explicitly states that “financially successful Creators” are more valuable to the company than creators who earn less money (“We’d rather have our GMV [gross merchandise volume] be made up of fewer, but truly life-changed creators rather than a lot of creators making a few dollars.” is a rather telling quote.). Luhrs claims this is evidence that Patreon is intentionally trying to prioritize big earners over small-time earners on the platform. If this is the case, there is no small irony in the fact that Patreon’s highest-earning project — and therefore its most “financially successful” — is a socialist podcast that has come out swinging against the new fee policy.

Others point to different possible motivations. Developer Jason Yu theorized that the real reason behind the change was not Patreon’s desire to effectively gentrify the ranks of its creators but to minimize costly instances of patrons getting confused and disputing charges that they made because they didn’t realize they were being aggregated by Patreon — the example given was a patron who makes 20 $1 monthly contributions and disputes a $20 charge from Patreon because they don’t recognize it. (Jason nonetheless concludes that “Unfortunately for Patreon, they may find that this change only shifts payment fraud to other channels while angering their creators and patrons in the process.”)

The fact is that we don’t have access to Patreon’s internal deliberations, so it may not be possible to pinpoint Patreon’s exact motivations for making this move. However, we don’t need to know the motivations behind the move to objectively assess its effects. It’s clear that the fee changes, as proposed, will make the act of contributing small amounts of money to many different Patreon campaigns much more expensive in percentage terms. These new fees, at 2.9% + $0.35 per individual pledge, plainly incentivize patrons to concentrate their Patreon spending on fewer creators in order to cut down on the number of times they’ll be forced to pass these new virtual toll booths. This can only have the effect of shifting patron spending up the ladder, benefitting larger creators at the expense of the smaller ones. Chalk up a rare win for the beleaguered 1%!

Final Thoughts

Don’t hold me to this, but I suspect Patreon will survive the current controversy. The most popular creators will see a net increase in the amount of revenue they take in, as they’ll be able to count on getting 95% of what is pledged to them. Patreon will continue to grow, and they will point to this growth to retrospectively justify this month’s change in their fee policy. But the numbers won’t tell the whole story. Creators will be left having to hope that their increased cut will be enough to cover the losses incurred from other patrons dropping or reducing their support. On this count, the big, established creators are obviously better positioned than the small-time creators.

Wasn’t the original intent of rewards crowdfunding to give a leg up to these very same small-time creators? To help them get the recognition they deserve in a world increasingly dominated by those who can leverage their existing advantages for their enduring benefit? Patreon might see increased aggregate growth from this move, but at what cost to those who Patreon might not define as “financially successful Creators” who have been “truly life-changed” but who rely on the platform to earn a few extra bucks to help make ends meet?

We know that when questions of this nature are ignored, the result is a society ever more aggressively stratified by wealth and power, so perhaps it’s high time these issues were given the consideration they urgently require.

Jason Vissers

Jason Vissers is a writer, cereal chef and Netflix aficionado from San Diego. A native Californian who enjoys the beach, Jason nonetheless prefers to do his surfing on the World Wide Web, the raddest wave of them all. Jason can’t eat raisins.

Jason Vissers

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Do I Qualify For A Startup Grant?

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startup grants

Free money to start your business – isn’t that every entrepreneur’s wildest dream? It’s too bad that startup grants are so hard to come by. You can think of business grants sort of like scholarships for adults. Just as with a scholarship, you have to convince the grant-issuer that a) you will put the funds to really good use and b) you are more deserving of the money than other applicants.

There are many types of business grants offered by myriad organizations, both public and private. As you might figure, there are different eligibility requirements for different grants. In general, though, only certain types of businesses are eligible for grants. These include businesses belonging to economically disadvantaged demographics such as Native American Indian tribe members, single mothers, and veterans returning to civilian life. There are also grants for innovative businesses breaking new frontiers that benefit society  – think tech startups, doctors, and scientists.

In this post, I’ll talk about the types of businesses that might qualify for a startup grant, and give a few examples of organizations that offer grants to these businesses.

If you belong to any of the following business categories, you might eligible for a startup grant.

Table of Contents

Innovators

Many startup grants are for innovators and businesses which contribute valuable creations to society. These grants are generally for entrepreneurs in the fields of technology, medicine, science, agriculture, education, and research and development. Here are some grants you might qualify for if your business falls into this category.

Grants.gov 

While this is the one-stop shop for all U.S. government grants, the majority of these grants go toward businesses and nonprofits in science, medicine, and R&D.

Search for grants on Grants.gov or check your eligibility to apply for a grant from the federal government.

SBIR 

From The Small Business Innovation Research (SBIR) website:

The SBIR program is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization.

This US government-funded program awards grants of up to $150K in Phase I of funding. Depending on the results achieved after six months, recipients may receive up to $1 million over the next two years (Phase II).

NC IDEA 

This is a private foundation offering up to $50K for high-tech companies in the state of North Carolina.

Green Businesses

There are some public and private grants for green businesses, including startups. Generally, these grants cover the cost of installing sustainable infrastructure and/or energy systems.

Rural Energy For America Program 

As part of the USDA (U.S. Department of Agriculture), this program awards renewable energy systems and energy efficiency improvement grants. Grants are awarded to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements.

Green Technology Business Grant Program 

This grant is designed to attract new green technology businesses or to expand existing green technology businesses in the City of Cleveland, Ohio. Eligible applicants may receive grants of up to 0.5% of new payroll to the city for up to five years and may also qualify for an additional $5,000 Moving Assistance Grant.

Rural Businesses

Various grants aim to stimulate the economy in rural and economically distressed areas. These grants serve to attract new businesses to struggling regions. Depending on where you are opening your business or nonprofit and the specifics of your organization’s goals, you might eligible for some of this grant money.

Rural Business Development

This grant is specifically for nonprofit and public entities. From their website:

This program is a competitive grant designed to support targeted technical assistance, training and other activities leading to the development or expansion of small and emerging private businesses in rural areas which will employ 50 or fewer new employees and has less than $1 million in gross revenue.

From the same agency, rural farmers/agricultural producers might be eligible for the Value Added Producer grant, while for-profit businesses that provide education or health care to rural areas through telecommunications might be eligible for the Distance Learning and Telemedicine grant.

U.S. Economic Development Assistance Grants

From their website:

EDA supports development in economically distressed areas of the United States by fostering job creation and attracting private investment. Specifically, under the Economic Development Assistance programs (EDAP) Notice of Funding Availability (NOFA), EDA will make construction, non-construction, and revolving loan fund investments under the Public Works and Economic Adjustment Assistance (EAA) Programs.

Interested? Check out the EDA’s grantee resources.

Women-Owned Businesses

There are many business grants you might be eligible for if you are a female entrepreneur. Additionally, some grant money goes to businesses that create solutions that benefit women and families.

InnovateHER Grant 

Sponsored by SBA’s Office of Women’s Business Ownership, the InnovateHER grant competition is an opportunity for entrepreneurs who create commercially viable products and services that benefit women and families. The first place prize awarded in 2017 was $40,000. There were also grants awarded in the amounts of $20,000, $15,000, and $10,000.

Chicago Foundation For Women

Women living in the Chicago metropolitan area are eligible to apply for a grant to start a new business through this nonprofit fund. Grants range from $15,000 to $150,000. These grants are very competitive and are only available to businesses that benefit women’s economic security, freedom from violence, and/or access to health care.

Nonprofit Organizations

Nonprofit startups that have 501(c)(3) status with the IRS are eligible for some government and private grant money. In fact, you’re much more likely to be awarded a grant if you run a nonprofit organization, as opposed to a for-profit business. While there are tons of nonprofit grants, I won’t spend too much time on this section, assuming this audience is mostly for-profit entrepreneurs.

These grants, which you can apply for year-round, are mainly for nonprofits and educational programs, though some small businesses may be eligible as well.

As mentioned, Grants.gov is the main stop for government grants, many of which go to nonprofit causes.

Veteran-Related Businesses

Veteran business grant money includes retraining grants for veterans returning to civilian life and grants to nonprofits providing services to veterans. Below are a couple examples.

StreetShares Commander’s Call Veteran Business Award

This StreetShares program awards annual grants to veterans and spouses of veterans who own small businesses. The first place award is $5K, the second is $3,000, and third is $2,000.

StreetShares also offers conventional business loans to some small businesses, veteran-owned or otherwise. Head over to our StreetShares Review for a rundown on their loan services.

Wisconsin Department Of Veterans Affairs Retraining Grants

This program awards up to $3,000 per year for up to two years to veterans receiving job-related training. Most “startups” probably wouldn’t be eligible for this program, but hey, it’s possible.

2501 Program

These grants, awarded through the USDA, go to veteran and minority farmers and ranchers. You might think that most startups aren’t in the farming sector, and you’d be right, but ag-tech startups are gaining prominence – think sustainable farming and other “smart” farming practices now possible with the help of new technology.

Minority-Owned Businesses

While there are grants designed to benefit various non-white business owner demographics – Hispanic Americans, African Americans, Asian Americans, and others – most government grants for minority businesses are specifically for members of federally recognized Native American Tribes. Here are a couple grants that may help fund minority-owned startups.

Healthcare-related small businesses can use this grant for programs that provide health services to minorities.

Native Arts Capacity Building Initiative

Offered through the American Indian First Nations institute, this initiative awards six grants of up to $30,000 each year to Native American institutions that support arts and culture.

Note that while the Minority Business Development Agency offers various resources designed to help minority business owners, this program does not include grants.

Just Plain Amazing Small Businesses

There are a few general small business grants available to any kind of business, but they are very competitive, so you will need a super impressive story to wow the judges. An impressive track record is a particular challenge for a startup business, which is usually defined as a business that’s been around for less than six months. But hey, if you’ve achieved a lot in just a few months or you have an especially amazing idea, you might want to apply to one of these highly competitive small business grant contests.

FedEx Small Business Grant Contest

Any type of small business may apply. To give you an idea of what kind of competition you’d be facing, in 2017 there were 4,500 applicants and 10 winners. The grand prize is $25,000, and the other winners in the top ten get $5,000.

Miller Lite Tap The Future

This grant is one of the few that’s actually specifically geared toward startups. With this Shark Tank-style entrepreneurship grant contest, participants have the opportunity to pitch their business ideas and compete for the grand prize of over $100K.

Visa’s Everywhere Initiative

This contest awards startups with innovative IT solutions, awarding $50,000 to the top three finalists.

Startup Grant Alternatives

Very few private businesses are actually eligible for a business grant. Unless your business or startup is highly innovative and provides a demonstrable benefit to your community or the world at large, unfortunately, you are probably not grant-recipient material. Even if you are eligible for some grant money and you make it through the lengthy proposal process, you may only land a few hundred to a few thousand dollars.

Furthermore, startup grants are particularly hard to come by, as grantees will generally want to see what kind of results you’ve achieved on other projects carried out by your organization. Don’t fall for government grant scams that will have you believe there are piles of free grant money out there for the taking – this is not the case at all.

So, rather than hoping to be among the fortunate few who are granted free money, you might want to look into grant alternatives for your business.

Startup grant alternatives include crowdfunding, P2P lending, online loans, equipment financing, and others. Some examples might include:

For more ideas on how to get the seed money for your new business endeavor, check out our article on the best ways to finance a business startup.

Shannon Vissers

Shannon is a freelance writer and editor based in San Diego, CA. Shannon has a three-year-old daughter named Izzy. Shannon likes to unwind by watching trashy reality television and reading literary fiction during the commercial breaks.

Shannon Vissers

Shannon Vissers

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