Kickstarter like websites are popping up faster than we could have imagined, providing opportunities not only to individuals or startups but also to big players like real estate development companies. Real estate crowdfunding as an industry, according to Forbes, will continue to evolve with an anticipated value of more than $300 billion by 2025.
Plenty of crowdfunding software solutions out there built with WordPress or Joomla claim that it’s quite an easy thing to do. While it’s true for smaller crowdfunding companies, there are still many important factors to consider if you plan to start something serious.
Business models, key functionality, payment processing may seem quite confusing at first glance. In this article, we will clear it up and explain how to start a crowdfunding website like Kickstarter!
A quick overview of crowdfunding platforms
Crowdfunding platforms nowadays are countless, and each of them has something of their own to offer – Kickstarter, Indiegogo, GoFundMe, RocketHub – you name it.
Types of products these platforms help get funded vary too and by and large you can crowdfund just everything!
Music and Art
Sellaband is a crowdfunding website for musicians who want to record their professional album. They launch campaigns that receive (or sometimes do not receive) funding from the fans. A similar one is PledgeMusic which is another platform for musicians that works on direct-to-fan and preorder basis: in direct-to-fan projects, the fans are not getting charged until the campaign has reached its goal. In contrast, in preorder projects, the fans will be charged right away.
Some crowdfunding websites connect investors and borrowers in the agriculture sector. AgFunder, for instance, is a marketplace for startups in agritech that are looking to receive funding from accredited investors. The pre-screening process is quite thorough, and only 2% of all companies that applied are getting listed. HarvestReturns caters to young and experienced farmers, landowners and ranchers who are expanding their operations, buying new land, or simply who have issues getting credit from a traditional bank. It offers investors to diversify their portfolio by investing as little as $5,000 into timber, row crops, tree crops, or livestock.
Crowdfunding market in real estate sector is ever-growing. PeerStreet combines their real estate experience and big data analysis. The company offers short-term loans from 6 to 24 months as well as 30-day notes that give investors more liquidity.
RealCrowd has a retail, industrial, office, and development opportunities open to accredited investors only – those with income exceeding $200,000.
Real estate crowdfunding in Europe is more attractive as it’s much easier to enter this market due to lower requirements towards investors as compared to the United States.
Setting up a crowdfunding platform for real estate: JustCoded experience
Online portals for raising funds for property projects occupy an essential place in our portfolio. We’re proud that the design and functionality we create for our clients helped their platforms to achieve better performance.
CapitalRise is an online middleman offering investment opportunities for prime-property projects. It works with everyday backers giving the latter a chance to take part in projects with appealing returns. CapitalRise provides both equity and debt products by founding the SPV to issue shares or bonds. The investment minimum is £1,000.
If you’re a professional investor interested in high-grade residential and mixed-use development projects, then go to Homegrown. Here you’ll find thoroughly vetted projects which you can support by investing at least £500 in the SPV shares.
The transparent investment process allows angels to view all the project details and take informative decisions.
You’re going to build a crowdfunding platform that will be operating on a co-investing base? Great! Then take a look at Shojin.
It’s a UK-based company dealing with institutional property objects and attracting investors from all over the globe to support such projects. Shojin works with IFISA accounts, which makes it a perfect fit for everyday investors.
Space & science
As we mentioned, crowdfunding opportunities are countless, and you can invest even in space exploration! SpaceCrowdfund brings together rocket scientists, engineers, inventors, space startups and private investors. You can invest in a Mars Colony, Moon exploration, or orbital glider. A Mars Settlement campaign to be launched in 2018 is also up at Indiegogo and has already raised almost $314,000 out of $400,000 to date.
OrbitMuse offers a range of projects to invest in – telecommunications, drones and robotics, asteroid mining, astrobiology, remote sensing, or manned missions, and Experiment gives unlimited opportunities for scientific research funding.
A more strict investment platform SpaceAngels only selects 1% of companies that apply for funding. Its portfolio has projects on satellites, astrobotic technology, rocket engines – Ardusat, for instance, is an interactive platform that allows kids at schools to conduct experiments in space from Earth via Spire satellite network!
Now that we got you inspired with these crowdfunding platforms examples let’s get cut to chase and see in detail how exactly you can earn from your crowdfunding platform, how it will work for your customers, and what you need to build one.
Business models for crowdfunding
Think about your business model before you start writing any project specification or contact web-development agencies – the way you gain profit is the core of your crowdfunding business. The current crowdfunding market has many business models to choose:
- Peer-to-peer (P2P) lending
P2P lending is the most popular business model since it allows the lending and borrowing of money bypassing any financial institutions which act as a middleman. As reported by Massolution, its estimated fundraising volume in 2015 stood at $25 billion, and the demand continues to grow.
How P2P lending works
P2P lending websites bring together lenders and borrowers. Borrowers no longer need to go to a bank to get a loan, nor do they have to go through many financial checks. Investors, on the other hand, have more investment opportunities, although accompanied by higher risk. There is no such risk for the P2P lending platform itself as it just connects lenders and borrowers without putting its assets at stake.
The platform usually performs a credit risk assessment, determines a credit rating and then adds an interest rate to a borrower’s profile. Loan repayments are also made through the platform, and it can be integrated with a third-party system for handling transactions, as well as performing credit history checks and determining a credit rating.
A borrower pays an upfront origination fee which is used to process a loan and put it in place (usually from 1% to 5%), and that’s precisely where the P2P lending platform receives its income from.
Business case: crowdfunding website development for InvestMySchool
We elevate p2p websites not only for the real estate niche but also for educational organisations.
The business model of Investmyschool is built on p2p loans provided for selected schools and colleges by eligible backers. Crowdfunding campaigns run on the website are aimed at collecting money for buying new equipment, upgrading facilities or purchasing learning materials.
Best practices for a successful P2P lending platform
A typical crowdfunding platform allows the registration of both borrowers and lenders, which can be united into one flow or broken down into two registration forms for each role from the very beginning.
Borrowers should be able to create their campaigns or offerings, describe the details, assign open/close dates, set the funding goal, manage their transactions and repayments.
Investors should be allowed to view available offerings, manage their wallet (add funds), invest, and manage investments (cancel or withdraw). They may also be provided with some graphs and charts to check how their money is working and analyse the trends.
While it doesn’t seem very difficult from a user perspective, there’s usually a lot happening under the hood. Investors’ credibility is the first thing that is checked. It can be done manually, which usually takes a lot of time and involves many people, or it can be automated and performed on the go.
Many services provide KYC (Know your customer), AML (Anti-Money Laundering), and due diligence checks, and it’s a good idea to integrate them to provide a higher level of fraud protection.
Summing up the above, here’s a list of features you should consider if you decide to start your crowdfunding business:
- Credit score management
- KYC and AML
- ID verification
- Financial statistics and reports
- Personal finance management
- Support of multiple accounts
- Account tracking
- Data security
- Transaction management
- Admin back office
- Frequently Asked Questions or Support page
And some technical things to consider:
- Hosting providers
- SSL certificates
- Payment methods
- Audio/Video Media
- Web servers
- Mobile optimisation
Don’t forget that the experience should not only be safe but simple and straightforward. Make sure both investors and borrowers understand where they can find specific information, implement a clear structure and navigation, and make the website work perfect on all devices.
Which payment method to choose
Since your P2P lending doesn’t process any payments itself, you will need to go with some third-party solution. And when it comes to picking the payment gateway for your transaction processing – the sky is the limit. Not all of them provide excellent support, the required functionality and proper documentation, though.
The typical set of features a crowdfunding site requires is creating online wallets, defining repayment schedules, adjusting interest rates, and returning funds to investors in case the campaign hasn’t been fully funded.
While the first payment gateway that comes to mind is PayPal or Stripe, we recommend exploring other options too. MangoPay, LemonWay, Reyker or GCEN, for instance, are the payment providers tailored specifically for investment and crowdfunding processes and operations.
Both payment gateway providers are excellent in terms of due diligence checks, automated transactions, regulatory support, payment flows tracking.
LemonWay offers numerous benefits for crowdlending and fundraising websites including smooth borrower and investor onboarding, integration via high-performing APIs, handy dashboards.
Goji’s solutions can be used for various payment methods and flows, e.g. creating user accounts or executing inbound and outbound payments. What’s more, Goji is authorised to provide a white label Innovative Finance ISA to investment managers.
They allow you to create wallets, securely hold funds, collect payments or make refunds to bank accounts as needed while having all the regulatory procedures in place, too.
It’s worth mentioning that the citizens of the UK who hold an Individual Savings Account (ISA) are eligible for tax-free interest on peer-to-peer investments of up to £20,000.
Bespoke solution or a ready-made back office?
Now that we’ve cleared up the essentials, it’s time to think about which option you will go with in terms of your P2P lending platform development and what it may cost to develop a crowdfunding platform.
There are two possible scenarios here, both having their advantages and disadvantages depending on your current demand and capabilities.
First things first, a bespoke solution to build a crowdfunding website takes a significant amount of time. Even if you start working with a web development agency and hire a big team of highly-skilled crowdfunding platform engineers and designers, the turnaround of implementing everything a P2P lending platform requires may take half a year.
On the other hand, you have full control of everything that happens on your crowdfunding website. You can integrate it with any third-party system, implement a basic or sophisticated back office, and be in charge of everything that happens under the hood of the system.
If you’re more concerned with time to market length, it’s probably worth looking into a ready digital infrastructure that already offers a fully working back office, has many available integrations out of the box, and a proven record of successful cases.
There are a few crowdfunding software solutions that offer a ready infrastructure, and it may take less than 3 months to start a crowdfunding website with Crowd Valley back office, for example. It’s a crowdfunding technology that comes with a specific business flow for different roles and has all processes thoroughly tested and verified. Besides, you will save on coding since you don’t have to build the back office from scratch.
While the back office is already filled with various features, there’s always room for customisations and integrations with other systems through a robust API it provides.
A front-end platform that’s visible to investors and borrowers is built separately and always communicates data to the back office. You can design the front end of your crowdfunding platform according to your branding guidelines, and no one will ever know that Crowd Valley powers the back office.
As you can see, both approaches – be it a custom platform or a readily available back office – are worth checking out, and it’s mostly your call to go with the one you’re more comfortable with currently.
Crowdfunding software development can be a piece of cake with our specialised white-label environment — LenderKit. Whether you’re seeking a tool for building an MVP or a framework for developing a professional solution, LenderKit can become your go-to.
What benefits you get when choosing LenderKit to build your own crowdfunding platform:
- powerful front-end and back-end that is fully under your control;
- responsive layout and pro design;
- automated payment flows, KYC/AML and due diligence checks;
- secondary market and third-party integrations;
- ability to add custom features via developer-friendly APIs;
- a flexible solution that can be adjusted to any regulatory ecosystem;
- effortless migration of databases to your servers.
On a side note
No matter how you decide to build your crowdfunding site, never disregard the legal side.
Make sure to have a good lawyer who is ready to assist and never claim that your platform is risk-free – we all know nothing is risk-free in this world. If you’re dealing with real estate or securities, the law is not something to be taken lightly. It will be a massive plus if you have someone with extensive experience or education in the banking and finance industry on your team.
If you start your crowdfunding business in the UK, it will have to go through FCA (Financial Conduct Authority) procedures to determine regulatory compliance, so make sure to allocate time to fix probable issues and implement updates according to FCA guidelines.
Go! Crowdfunding platforms are not only about monetary benefits. Depending on the sector, a crowdfunding site may help you and your investors find this sense of fulfilment that we all are looking for.
Starting a crowdfunding business is just like starting any other business – it’s always hard until it’s easy. We have built several platforms, gained knowledge in this field, and will be happy to assist you in building a crowdfunding website for you.
Whether you already have a crowdfunding project in mind or start thinking about one – drop us a line, we’ll gladly discuss it with you and suggest a solution that fits just right!