Crowdfunding is a relatively new phenomenon that exploded on the internet just a few years ago. Since then, it has rapidly evolved and, at present, is the most popular funding method for start-ups, large reputable businesses, and charities alike.
So, that comes to the question, what is crowdfunding, how do you choose the right platform, and how does this strategy compare to other funding options? Hence, in this article, we will attempt to explore crowdfunding for businesses, its many benefits, and all you need to know before you try it.
What Is Crowdfunding?
Crowdfunding, as the name suggests, is a method by which entrepreneurs engage a crowd using the internet to co-fund their start-ups. The start-up venture can benefit from as many capital investors as feasible, either from around the world or through institutional investors and their conduits.
Most crowdfunding platforms available today are very tech-savvy and easy to use as many of the processes have been automated, like payment processing, legal disclaimers, investor updates, and bookkeeping.
Automating processes have made it simple for fundraisers and investors, helping the former reach a wider audience and providing the latter with a broader range of options.
There are four types of crowdfunding: Reward crowdfunding, donation crowdfunding, lending-based or debt crowdfunding, and equity crowdfunding.
Why Should You Crowdfund?
It is evident that the primary reason for crowdfunding is to make the required amount of money to kick-start your business idea, but that shouldn’t be the only reason, especially if this is your first-ever business idea.
Crowdfunding, for start-ups, can help attract more prominent investors and VCs by creating a sense of urgency. Additionally, it is an excellent way for you to show proof of your concept and, secondly, build your portfolio in case you’d like to crowdfund future business ideas.
Crowdfunding campaigns are also excellent for entrepreneurs to build visibility and spread the word about their brand. Also, reward-based crowdfunding will help you secure early users and ambassadors for your product and service.
When Is The Ideal Time To Start Crowdfunding?
Before starting the funding process, you must first conceptualize and develop your business idea thoroughly. If you’re building a product and not providing a service, you must create or start developing the prototype.
Usually, this process takes years, but this too can vary since different business projects range from one another. Once you have sufficiently developed the concept and product, you can begin crowdfunding.
How Do You Choose The Right Crowdfunding Platform For Your Business?
Before choosing a crowdfunding platform, you should consider several factors:
1. Carefully determine the purpose of your fundraiser, as not all available platforms support or allow crowdfunding for all the different types of crowdfunding. For instance, some websites only allow for disaster relief or medical assistance crowdfunding campaigns and not crowdfunding for arts, music, or business.
2. Choose a platform that provides its users professional assistance during the campaign period.
3. Since different crowdfunding platforms charge a nominal fee for their service, you should check the prices and fees before creating a campaign.
4. Look into the different payment gateways the platforms provide, as flexibility in payment options will likely encourage more people to invest.
5. Find out about the platform’s success rate. The higher the success rate, the better your chances of meeting your required goals.
6. If people already know of the platform, they will be more likely to trust and invest in you and your campaign.
What Are The Benefits Of Crowdfunding?
Capital doesn’t come easy to budding entrepreneurs these days, especially if they don’t have the connections that can help. Hence, crowdfunding has been beneficial and has helped countless people across the globe achieve their dreams. Now, let’s take a look at some of the benefits of crowdfunding:
Ø Crowdfunding provides access to finance:
Crowdfunding is possible without giving up on future equity or accruing debt, as entrepreneurs can choose a reward-based model. This model allows them to raise funds in exchange for their products or service.
Ø Crowdfunding hedges risk:
Starting a company from scratch is both challenging and risky. However, crowdfunding hedges these risks and helps prevent entrepreneurs from taking a product concept directly to the market.
Ø Crowdfunding is more straightforward than traditional approaches:
Crowdfunding is much simpler than pursuing a loan or other capital investments. All you need to do is find a platform that suits your purpose, sign up, and furnish the required information before you can start receiving the money to fund your goal.
Ø It helps you find customers and supporters early:
The early adopters are the ones who believe in your vision and idea enough to stake their money on its long-term success. In addition to helping your crowdfunding campaign succeed, they can also carry on the momentum you build even after the campaign ends, being the ones most likely to share it with friends and family and promote it on social media.
Ø Crowdfunding is an opportunity to gauge public reaction and receive advice from industry experts:
Crowdfunding can help you gauge the public reaction to your product or idea. The more people invest in your product or service, the better your chances of it being a success. Sharing your campaign details online may be beneficial to get feedback and insight from subject matter experts.
Crowdfunding has proven to be very profitable and beneficial if you’re looking for a way to kick-start your company. If you’re rushing in, make sure you’ve researched and know your options.