Is crowdfunding right for your marketplace startup? The Pros and Cons

Crowdfunding has become a popular route for entrepreneurs and startups who are looking to launch a marketplace but are low on funding.

In this post, we explore the pros and cons of crowdfunding a marketplace and help you determine whether it’s the right option for your marketplace startup.

What is crowdfunding?

Crowdfunding is a type of fundraising that allows entrepreneurs and businesses to raise funds for their projects by seeking contributions from a community of people. For marketplace founders, crowdfunding can be an effective way to launch their marketplace platform and bring their vision to life.

The crowdfunding process usually works by creating a campaign on a crowdfunding platform, setting a funding goal, and offering rewards or incentives to supporters in exchange for their contributions. The campaign can be promoted through various channels, such as social media, email, and word of mouth, in an effort to reach as many people as possible and generate interest in the marketplace.

What are the benefits of crowdfunding?

One of the main benefits of crowdfunding is that it provides marketplace founders with access to capital without giving up ownership of their company. This is especially important for marketplace startups, who can use the funds raised to launch their marketplace platform and develop their product. 

Crowdfunding also provides a way to validate your concept, as reaching your funding goal demonstrates that there is a demand for your digital product and that people are willing to support your vision.

In addition to capital, crowdfunding can also provide increased visibility for your marketplace. With the right marketing strategy, you can reach a large audience and generate interest in your platform before launching.

The pros of crowdfunding a marketplace

1. Access to Capital: The core benefit of crowdfunding is that it provides entrepreneurs with access to capital without giving up ownership of their company.

2. Increased Visibility: Crowdfunding is also a great way to raise awareness about your marketplace and generate interest from potential customers and investors.

3. Validation: Crowdfunding campaigns can help validate your marketplace idea and provide you with valuable feedback from potential customers.

4. Stronger Community: By crowdfunding your marketplace, you have the opportunity to build a community of supporters. Read our post ‘Building a marketplace community of brand advocates’ to find out more about the importance of building a marketplace community.

5. Alternative to Traditional Funding: Crowdfunding is a great alternative to traditional forms of investment, such as angel investment or venture capital. With crowdfunding, you can avoid giving up equity in your company, and you have more control over the process.

The cons of crowdfunding a marketplace

1. Risk of Failure: One of the biggest drawbacks of crowdfunding is the risk of failure. If you don’t reach your funding goal, you won’t receive any money, and your campaign may be considered a failure – which can be damaging to your reputation and may make it more difficult to raise funds in the future.

2. Time-Consuming: Crowdfunding campaigns can be very time-consuming, especially if you don’t have the right support and resources in place.

3. Competition: Crowdfunding has become popular, and there is a lot of competition for funding. You will need to stand out from the crowd and differentiate yourself if you are to succeed.

4. Fees: Most crowdfunding platforms charge fees for their services, which can eat into the funds you raise. Make sure you account for these fees and build them into your funding goal.

5. Regulations: Crowdfunding is regulated in both the United Kingdom and the United States. There are rules and guidelines you must follow.

Successful marketplace crowdfunding campaigns

1. Etsy is an online marketplace for handmade and vintage goods. The company crowdfunded in 2015, raising $40 million in funding.

2. Poshmark is an online marketplace for buying and selling fashion. The company crowdfunded in 2013, raising $25 million in funding.

3. Canva is a design platform that provides a range of tools and templates. The company crowdfunded in 2013, raising $3 million in funding.

4. Airbnb is a home-sharing platform that allows individuals to rent out their space to travellers. The company crowdfunded in 2009, raising $600,000.

5. Instacart is a grocery delivery marketplace. The company crowdfunded in 2012, raising $8 million in funding.

Leading crowdfunding platforms in the UK

1. Kickstarter is a leading global crowdfunding platform that focuses on creative projects. It allows entrepreneurs, artists, and creators to raise funds from its community of backers.

2. Indiegogo is a popular crowdfunding platform that provides entrepreneurs with access to funding and resources to bring their ideas to life.

3. Crowdfunder is a UK-based crowdfunding platform that focuses on helping startups and small businesses raise capital. The platform provides access to a large network of investors, as well as a suite of tools and resources to help entrepreneurs launch and grow their businesses.

4. Seedrs is a leading equity crowdfunding platform in the UK that allows investors to invest in startups and early-stage companies in exchange for equity.

5. GoFundMe is a crowdfunding platform that provides individuals and organisations with a platform to raise funds for a variety of causes, including personal emergencies, medical expenses, and community projects.

What to look for in a crowdfunding platform

There are a variety of different crowdfunding platforms available to choose from, each with its own unique features and benefits. When choosing the best crowdfunding platform for your marketplace, consider the following:

1. Reach: Consider the size of the platform’s audience and how many potential supporters you can reach.

2. Fees: Compare the fees charged by different platforms and factor them into your funding goal.

3. Support: Look for a platform that provides good support and resources to help you succeed.

4. Flexibility: Some platforms offer the ability to accept different types of payments or offer perks to supporters.

5. Regulations: Make sure you understand the regulations and guidelines of the platform you choose and ensure that you are able to comply with them.

Ways to successfully raise funds via crowdfunding

1. Develop a Compelling Pitch: A strong, well-designed pitch can help you generate interest and excitement for your project, and increase your chances of successfully raising funds.

2. Build a Community: Having a supportive community of backers, supporters, and fans can help you build momentum and spread the word about your crowdfunding campaign.

3. Utilise Social Media: Social media is a powerful tool for promoting your crowdfunding campaign and reaching a wider audience. Make sure to create a well-crafted social media strategy.

4. Offer Rewards: Offering rewards for backers can be an effective way to incentivise people to support your campaign. Consider offering unique and compelling rewards that align with your business goals.

5. Be Transparent and Responsive: Be open and transparent about your goals, and be responsive to questions and feedback from potential backers.

Want to learn how some our marketplace founders successfully crowdfunded?

Crowdfunding a marketplace can offer both opportunities and challenges. On one hand, it provides a platform to raise funds and bring new digital products to market more quickly. On the other hand, it can also be difficult to meet the expectations of backers in a crowded and competitive market.

However, with the right planning, preparation, and execution, crowdfunding a marketplace can be a powerful way to secure funding, build a community of supporters, and grow your business. Ultimately, the success of your crowdfunding campaign will depend on your ability to communicate your vision and values, offer compelling rewards, and maintain transparency and responsiveness throughout the process.