Crowdfunding to raise capital and test the markets for startups 

Written by Jinashri Samarakoon Wijesundara

Imagine your alma mater needs a new science laboratory. The past pupils’ association will now come up with a plan to raise funds to make this laboratory a reality. Once they size up the project cost and figure out how and who will construct it, they will start firing calls, dispatching letters, sending emails and social media messages to the alumni. The past pupils from various locations in the world, of various professions, across different batches and generations, will pitch in, united by the love for their school. Soon, the school will raise the required funds and have the laboratory it so badly needed. The happy past pupils’ association will now start to send out thank you notes personally signed by the school’s principal along with photos of the new laboratory to those who contributed. Donors of large sums of money might even be invited to the opening of the facility. Modern-day crowdfunding is not much different. Other than the fact that it happens on an online platform. Contributions will come from people who will not be intimately linked to an entity or a person like the school in our example, but the ideas that bring them into the platform will be the common cause. 

An entrepreneur embarking on a new business venture will inevitably be faced with the need to raise capital to finance his or her project. While seasoned entrepreneurs with sound business track records will be inclined to turn to banks and traditional lending institutions to fulfil their capital needs, those starting a business for the first time, social entrepreneurs and small-timers will hit a stumbling block at this point. The banks and traditional financial establishments will not look kindly at the first-time entrepreneurs who lack assets, immovable property and experience, non-traditional business ventures and micro businesses. We explored some financing options available for tech startups in our last edition in the article titled “Funding startups in the tech industry- a much-needed boost for economic growth” by the same writer. In this article, we discuss crowdfunding platforms as a novel and alternative method to raise funds for innovative business ideas- tech projects or otherwise.

How platforms raise funds

Crowdfunding is a method to raise capital from a large number of investors or donors who will contribute small amounts of money to support a business idea they find appealing, usually over an online platform, or website. The investors may receive the product being developed at an early bird discounted rate, gain monetary returns, non-monetary benefits or nothing more than a thank you note for supporting a promising startup depending on the type of crowdfunding platform. The platform generates revenue by retaining a percentage of the capital raised for projects it promotes.

As the focus is on the entrepreneur or the startup, the article will look at crowdfunding from a fundraising perspective rather than from an investment opportunity angle. The topic of how to evaluate crowdfunding platforms and projects for investment purposes is therefore not investigated here. 

Equity or reward 

An equity crowdfunding platform raises capital offering a minority stake in the projects or monetary benefits to the investors.  Reward-based platforms are the ones on which contributions are made as donations in exchange for non-monetary rewards (products, thank you notes etc.).

Campaign size seems to be larger in equity-based platforms. Also, this type of platform suits a startup that has a properly formulated business idea and possibly a minimum viable product (MVP) to demonstrate to the investors. Reward-based platforms can be used even by those who do not have an MVP, to raise a relatively smaller amount of money to conduct pre-startup R&D, develop an MVP, and even test market the concept.

In most jurisdictions, restrictions apply to who can fund a new business and how much they are allowed to contribute. These regulations are supposed to protect unsophisticated or non-wealthy investors from putting too much of their savings at risk. 

However, its increasing popularity as a source of raising equity for their business ventures and a contributor to their capital markets has led developed economies to start organising their rules and regulations to allow equity or investment crowdfunding platforms to operate. reports that investment crowdfunding, or crowd-sourced funding 

(CSF) in Australia has doubled in the first half of 2021 in comparison to the same period in the previous year.  In aggregate since CSF became legal, over 144 Australian SMEs have raised over $100 million backed by 68,000 investors – all in spite of COVID-19    

Sri Lanka too has regulatory restrictions that limit equity or investment crowdfunding.  At present, crowdfunding platforms overcome this barrier by inviting investors to pledge their interest in projects on their platforms. If sufficient interest is achieved, they arrange face to face discussions with those who indicated an interest in investing, and the project owner or entrepreneur. Fundraising that takes place afterwards therefore, is more like a private equity investment than a typical equity crowdfunding exercise. 

Imagine the same school fundraising project we discussed earlier. Instead of asking past pupils to blindly contribute money straight away based on what was laid out in the letter that was sent to them, the school invites them to a meeting, makes a presentation of the proposed project, indicates the risks involved in such an undertaking and explains how it plans to reach the project milestones to complete building the laboratory.  Based on this information, now the past pupils make a more informed decision of supporting the project.  Local equity-based crowdfunding platforms work the same way. Instead of having investors committing funds immediately on the platform, they hold a pledge round, followed by direct meetings with the entrepreneur before the investors commit investments to the project. 

A natural question arising in the mind of an entrepreneur at this point surely is “Will I be able to raise the required amount of money through this method and how long will it take? Will there be risks involved and what are the crowdfunding platforms available in Sri Lanka?”. We will strive to answer those questions here.

“Crowdisland has been able to close the funding round for the online lifestyle store JustGoodness in 5 days and raise funds for 2 years for the national public transport platform Express Amphibious in two months

Expeditious fundraising

An innovative product or service concept can raise funds using crowdfunding platforms, much faster than through conventional means.

A recent crowdfunded success story with Sri Lankan origins is that of Magicbit, the tech innovation by a team of professional engineers from the University of Moratuwa that launched a crowdfunding campaign on Kickstarter, a top global crowdfunding platform, and reached their full funding goals in just four hours. 

Lankan crowdfunding platform Crowdisland has been able to close the funding round for the online lifestyle store JustGoodness in 5 days, and raise funds for 2 years for the national public transport platform Express Amphibious in two months, when the startup’s original goal had been to raise funds for a mere one year. This is discounting Crowdisland’s comprehensive prep process before going live on the platform for fundraising. 

Tribefunds, a reward-based crowdfunding platform, pointed out that the upmarket dessert store Bellissima not only raised funds but also managed to create awareness for their store by raising funds with them.

Although these success stories are inspiring, a product concept that has no appeal to the public or the investors on the platform may end up reaching a part of the intended goal or not raising any funds at all. Generally, if the campaign fails to raise money, the startup may lose the joining fee, if there is one applicable. Although successful campaigns can raise money quickly once they go live on the platform, the time and money going into the promotional efforts needed prior to this stage to ensure a favourable crowdfunding outcome, have to be factored in. 

The general cost of fundraising through crowdfunding 

“We felt that the interest created on the crowdfunding campaign will help us generate awareness for our product internationally – Migara Amithodhada

The popular global platforms usually charge a percentage of the funds raised for a campaign (generally around 8%, but sometimes higher). It includes the platform fee as well as the payment processor fee. Apart from these fees, the entrepreneur should also look at digital marketing activities to strategically promote the product concerned to draw investors to his or her campaign on the crowdfunding platform. Months of preparation and digital marketing activity prior to the live campaign on the platform, are part and parcel of clinching the expected amount in pledges. There are third party digital marketing companies that specialise in preparing publicity material for campaigners looking at global crowdfunding platforms. Their fee usually is a percentage of the crowdfunded pledge amount.  As a general rule of thumb, 25-30% of the pledge amount intended to be raised should be allocated for such marketing effort, including experts’ charges, production as well as advertisement placement costs. 

Not just for fundraising, but for testing the product potential too!

Apart from raising funds, crowdfunding sites are also a good place to sound out new business ideas to a large group of investors who can also be potential customers, thus allowing the new business ventures to test markets and assess the market acceptance for their innovations or even pre-sell products or forward book orders in markets where there is a legal provision to do so. They can and even gain pre-production publicity that will lead to future orders.  


In fact, Migara Amithodhada, co-founder of Magibits says fundraising through the Kickstarter platform was a secondary objective for them.  “The first reason was, community support to create content and knowledge sharing for the usage of magicbit in STEM education, is important for it to be successful. Secondly, everyone who saw our product from the beginning said it had the potential to go international. The conventional ways of promoting a product in international markets are very costly.  We felt that the interest created on the crowdfunding campaign will help us generate awareness for our product internationally”

Local players   

Sri Lankan companies may face practical issues when raising funds on global platforms. This can be due to the payment processors of the global platforms not operating in Sri Lanka. This issue can be overcome by registering the campaign through a party residing in a close-by market such as Singapore where these platforms have gained traction. Apart from this technical issue the associated digital marketing campaign costs mentioned earlier also have to be considered when considering a global platform. 

Therefore, this article highlights two Sri Lankan crowdfunding platforms (one reward-based and one equity-based), startups can consider.

Tribefunds is positioned as the “go-to reward-based crowdfunding platform for entrepreneurial, creative (film, music, arts), charitable and social projects in Sri Lanka”. Founded in 2015, they are fashioned after the global Indiegogo platform. Since it is a reward-based platform, the incentive for the investors of commercial ventures is usually a thank you note coupled sometimes with a complimentary product or service from the entrepreneur. Investors support a project as a philanthropic activity or as early adopters who are fascinated with a project, or as idea proponents who desire to see their pet product concepts becoming a reality. Whichever the reason, they do not expect anything equitable in return. Therefore, they are more donors than investors.

Tribefunds has successfully supported the Bellissima desserts to launch their store, several handicraft projects, video projects and tech projects.


Roshaan Ranasinghe, founder of Tribefunds informed that an entrepreneur interested in showcasing his or her project on the platform needs to first send a single paragraph project description by completing the simple form available on the website. Tribefunds’ review panel consisting of experts on SMEs, legal personnel, and civil society members will then review the concept and revert to the entrepreneur within days.  If the concept is deemed viable, the entrepreneur will be contacted for full details of the project. The Tribefunds team will then support the entrepreneur to prepare the pitch documents, and all promotional material to ensure that the idea is effectively communicated to the public. They also run digital marketing campaigns using Tribefunds’ marketing budget to ensure good awareness levels for the project when it opens up for fundraising on the portal.

The support Tribefunds gives to the entrepreneurs to present their concepts compellingly to the donors, Roshaan explains, is something that sets them apart from other reward-based platforms.  In the larger global platforms, the entrepreneur or the campaigner needs to turn to external help at a cost to prepare the promotional material and pre-campaign digital marketing.  

 “Because we promote all projects going live on our platform on social media with our own marketing budget, they sometimes get mileage beyond the funds they raise” Roshaan Ranasinghe

Tribefunds supports entrepreneurs with high potential project concepts to find equity partners as well. Whereby, in addition to the public access pitch document a detailed restricted access document of such projects will be made available to registered members of the portal to indicate if they are interested. If the level of interest is at 80% or more, Tribefunds will bring the potential investors and the entrepreneur together and facilitate the deal to move forward.

While there is no cost to the entrepreneur to showcase a project, a 5% admin fee and a 3.5% credit card fee will be charged from the funds raised.  If a project fails to raise the desired capital goal, whatever amount collected on the campaign will be handed over to the campaign owner. 

There is an overwhelming need for funds for community and social causes due to the situation right now. We support these campaigns by reducing our admin fee to 2.5% from 5% and we will continue to support all causes without any discrimination except for political campaigns,” informed Roshaan. 

CrowdIsland, founded in 2015, is an equity crowdfunding platform, where investors provide funds in exchange for minority shares in a startup project. The platform mainly targets the Sri Lankan expat investors who desire to support promising Sri Lankan projects. This segment has contributed the most in terms of value to the funds raised by Crowdisland so far. Crowdisland strives to be more than just a platform that connects investors and startups, by following a process of curating, structuring, fundraising and monitoring the projects taken on board. They have enjoyed a 100% success rate in fundraising and project survival owing to this. Some of the projects Crowdisland has successfully raised funds for include, digital fantasy cricket game Cricrush, the online healthy lifestyle platform JustGoodness, a national public transport platform  Express Amphibious. Early-stage startups, especially those that deal with disruptive tech innovations, i.e. technologies that significantly alter the way things are being done today, go through a rigorous process that helps them refine their business model, key performance indicators (KPIs) and execution plans through the startup incubation and acceleration arm of Crowdisland, Hatch, before going live on the platform for fundraising. Crowdisland takes a minority stake in the startup and continues to monitor and guide the project’s performance even after the crowdfunding round is completed. 

“Our goal is to help the startups raise funds to develop an MVP, by putting them through this process” Nathan Sivagananathan, Founder & Director, Crowdisland explains.

“Crowdisland will be relaunching soon, with several strategies in place to reach more investors” Nathan Sivagananathan

Nathan also informed that CrowdIsland will be relaunching soon and that they have several strategies lined up to increase their investor outreach. Therefore, they will not be accepting new projects through the Crowdisland platform at present.  Entrepreneurs who wish to raise funds through Crowdisland may join the Hatch incubation programmes  ( and ready themselves to go live on the Crowdisland platform after the relaunch.


Crowdisland charges a joining fee and a percentage of the funds raised (6%)  as operational charges. They also take a 2% equity in the startups they take on board.

The verdict on crowdfunding  

So here is everything we discussed in a nutshell. Startups with unique novel concepts, be it disruptive tech innovations, social entrepreneurship projects or micro-businesses who are unlikely to fulfill capital requirements through conventional means may raise funds and test their concepts on crowdfunding platforms. The decision to take the equity or reward-based platform route depends on how much capital the startup wishes to raise, bearing in mind that, equity route means giving some shares to the investors. Giving away shares has to be done in congruence with the startup’s plans to raise funds in the future, hence the deals have to be structured appropriately, ensuring those prospects are not hindered.  Both the platforms introduced here help the startups structure those deals. 

Generally, business plans need to be more comprehensive, product-market fit determined and an MVP be ready to seek an equity crowdfunding route. Reward-based crowdfunding can be better suited for an entrepreneur who wishes to test market a concept or raise funds for pre-startup R&D.  Whichever path a startup may decide to take, it is important to do the homework and choose a credible platform.

Whether one should aim for a global crowdfunding platform or a local one depends again on the campaign goals such as the extent of capital intended to be raised, market outreach and the long-term strategy of the startup. Campaigns on global platforms need to factor in the resources required to build awareness externally for the fundraising effort.  The two local platforms highlighted in the article provide expert guidance to the campaigner to run a successful campaign and promotional support as a part of their service. 

From an economic standpoint, crowdfunds will undoubtedly play an increasingly vital role in creating a vibrant startup economy that proves employment and creates wealth. They also have the potential to bring in foreign direct investment into the country from small scale investors who may not be tapped with large scale development projects.

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