What Is Crowdfunding?
All You Need To Know

There are many ways to raise money as a charity, business or individual. One method is becoming increasingly popular: crowdfunding (crowdfunding is often misspelt as crowd funding, crowfunding, groundfunding, growfunding). What is it, and how to set up a crowdfunding page? The meaning of crowdfunding is self-explanatory: raising money from a crowd. You promote your plan to as many people as possible and ask them to donate or invest money. You can create crowdfunding campaigns through online crowdfunding platforms.

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Crowdfunding Charity - WhyDonate
crowdfunding types - WhyDonate

Types of Crowdfunding

A distinction is made between 4 types of crowdfunding.

1. Crowdfunding Donations

Donation Crowdfunding is probably the best-known form of crowdfunding. Usually, they raise money for social causes, such as expensive medical procedures or associations. Donations don’t give investors a return, it’s a pure gift. In Europe, there are several platforms that offer this service, including Crowdfunding Platform WhyDonate.

Crowdfunding For Charities

Crowdfunding for charities can be a successful way of fundraising. More and more donors prefer to give ad hoc instead of monthly. The urgency of crowdfunding for a good cause is very high and that can lead to large donations and a lot of visibility of the campaign. Social media and crowdfunding go very well together.

Do you want to easily raise money for charity? Start a free fundraiser page on WhyDonate. With a crowdfunding fundraiser on WhyDonate, you receive donations from your network and around it. Your fundraiser will be online in minutes!

View more Crowdfunding Charity tips and examples here.

Personal Crowdfunding

Apart from organisations, individuals can also raise money through crowdfunding. More and more individuals receive loans, donations and corporate financing and mortgages through private crowdfunding. It is often difficult to get a loan from a bank, which is why crowdfunding can a solution. Even when you are short on cash or need a huge amount for medical treatment abroad, setting up a private donation crowdfunding campaign is easy and free of charge on WhyDonate.nl.

2. Crowdfunding Loan

The fastest-growing form of crowdfunding is the loan form, which is used to finance SMEs. This form represents 89% of all crowdfunding in the Netherlands. In exchange for a loan of money, investors receive a financial reward. Sometimes they also receive an incentive.

3. Crowdfunding Equity

In equity crowdfunding, the company makes investors co-owners of the company. Sometimes literally because it directly issues shares.

Suppose it is difficult to properly value shares, for example, when turnover or profit is still difficult to predict. In that case, a company can first issue a convertible and later convert it into shares. Crowdfunding in shares makes the investors co-owner of the company. It is therefore also referred to as crowdfunding in venture capital.

In Europe, equity crowdfunding is less popular than the loan or donation variant, but it has some interesting advantages.

4. Reward-Based Crowdfunding

The main difference between donations and crowdfunding as a reward is that in the latter form, investors receive non-financial rewards from entrepreneurs. This usually applies to projects in creative departments or start-ups. In return, this can be a concert ticket or a copy of a CD. Investors can also receive a copy of the product (yet to be designed) and receive a certain amount of sponsorship.

What Types of Crowdfunding are there?

A distinction is made between 4 types of crowdfunding.

How to Set up a Crowdfunding - WhyDonate

How To Set Up A Crowdfunding Page?

Do you have a great idea or do you need financial support? Then don’t wait too long, but start immediately with a crowdfunding campaign. This process can be very fast. How quickly you can collect donations to realize your dreams is completely in your own hands. You can decide for yourself how you present the crowdfunding campaign to the public and which crowdfunding platform you use for this. For example, you can write text with a lot of explanation and background information, or make a short video to explain your thoughts. However, it is important to always provide sufficient information about your goals or wishes. To make wise choices, potential donors/investors must have sufficient information about the nature of the crowdfunding campaign. It is important that as many people as possible participate in your crowdfunding campaign. The sooner you start with free crowdfunding, the sooner you can use the donations and get started. Follow the 7 steps to start successful crowdfunding.

  1. Create a crowdfunding plan
    What do you need to raise money for? Explain this in detail on the crowdfunding platform. Determine your financing need, how much money do you need for your action? Make a realistic estimate as much as possible.
    In the first half of 2021, entrepreneurs raised an average of €260,000 through crowdfunding. You can raise a maximum of 2.5 million euros per crowdfunding campaign via crowdfunding websites. The European Parliament has decided to increase the amount to EUR 5 million. Effective from November 10, 2021.
  2. Determining Rewards for Investors
    Think about the rewards you offer to investors. What is realistic? Make interesting suggestions to interested investors. There are several options that can be combined.
    – Donations
    Donors give you money and expect nothing in return. Keep in mind that gift tax can play a role in this. A gift tax applies if a certain amount is exceeded.
    – Shares
    Investors buy shares in your company and receive dividends (earnings-related compensation).
    – Loans
    Investors provide loans. You can determine the interest rate and the period yourself within a certain bandwidth. Startups have a high-risk profile, so you automatically have to offer a higher interest rate. Crowdfunding platforms can advise on this.
    – Convertible bonds (equities)
    These are convertible bonds (bonds) that can be converted into shares. It is a loan that you can convert into shares at a certain point in time.
    – Reward or compensation
    You offer an investor something in the form of a product or service. You can think of playful behaviour. Note: The value of the consideration is subject to VAT.
  3. Choosing a crowdfunding platform
    Choose the crowdfunding platform that suits best your purpose. Pay attention to the following points: The crowdfunding model used, the amount required, the duration of the financing campaign, the duration of the financing and the industry. You can have a free crowdfunding scan performed for this.
  4. A good story
    A short and meaningful story is important to attract donations/investment to your cause. Therefore, prepare a good pitch. Ask yourself what potential crowdfunding donors and investors want to know from you. Talk about yourself, bring your passion into your story and show what problems your products, services, ideas or companies solve and who helps you. In this way, it is clear what the investor is putting money into. Explain the benefits and risks for investors. Use attractive visuals and a video pitch. Watch videos from various crowdfunding platforms for inspiration and examples.
  5. Mobilize your network
    You can warm up and mobilize your existing network before launching a crowdfunding campaign. Let them know when the campaign launches. This allows you to create ambassadors, collect pledges and measure feasibility. For example, hold a launch party to get attention before launching a campaign.
  6. Start the campaign
    The campaign starts. Campaign time begins. Use every moment of this period to report on your campaign online and offline. Make the story personal every time and show your commitment. Use (social) media to draw attention to your campaign.
  7. Stay in touch with donors and investors
    At the end of the campaign, thank the donors and investors and inform them of the outcome. A new phase begins: You can start carrying out the set goals. It is now important to communicate with them about the progress of your activities. Keep your promise: give your investors their compensation. Stay in touch with them, even if your plans are delayed.
Crowdfunding taxes - WhyDonate

Crowdfunding Tax

The Tax and Customs Administration considers the four forms of crowdfunding to be one form of income. You may have to pay tax. But every situation is different and is subjected to different tax rules. Contact the tax authorities to find out if you have to pay tax and how much. Or consult a bookkeeper, administrative or tax expert, accountant or tax adviser.

​​Crowdfunding Donation – Gift Tax

If you donate and there is no return, it is a gift. This is regarded as turnover for income tax purposes. This increases the profit and you tax it again. Because there is no consideration, the turnover you receive in this way does not owe VAT. Therefore, you can treat it as income without VAT in your accounting procedures. Learn more about Crowdfunding Tax when receiving donations here.

Crowdfunding Rewards Tax

Donations that are expected to be rewarded will be treated as products or services that you have sold. This is also regarded as turnover for income tax purposes. On the other hand, you can deduct the purchased product from the profit. Whether the profit will increase as a result – you have to pay tax on it – depends on the value of the product. In addition to income tax, you must also pay sales tax on the product’s sales value. With crowdfunding, you have to pay sales tax on the amount raised through crowdfunding. That is why in your accounting system the amount you receive is regarded as income, including the applicable VAT percentage.

Crowdfunding Loan Tax

TThe third option is to take out a loan. From a tax point of view, loan-based crowdfunding has the same meaning as regular loans. The amount obtained must therefore be repaid. You can deduct the interest expense from the loan, which means that the profit is lower and you pay less income tax. Loans do not affect sales tax.

FAQ Crowdfunding

faq crowdfunding - WhyDonate

Crowdfunding Reviews

Many WhyDonate customers are satisfied with the outcome of their crowdfunding campaign and have written a positive Google Review.

 

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How it works:
When creating a standalone fundraiser, donations will be paid out to your bank account.

Note: donations are transferred monthly around the 15th of the following month.

How it works:
When creating a connected fundraiser, it will be linked to an existing one. The donations will be paid out to this parent fundraiser. To create a connected fundraiser, you need to visit the parent fundraiser page and click the ‘Connect fundraiser’ button.

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How it works:
When creating a standalone fundraiser, donations will be paid out to your bank account.

Note: donations are transferred monthly around the 15th of the following month.

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Team or connected Fundraiser
How it works:
When creating a connected fundraiser, it will be linked to an existing one. The donations will be paid out to this parent fundraiser. To create a connected fundraiser, you need to visit the parent fundraiser page and click the ‘Connect fundraiser’ button.
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