Translating an innovative concept into a thriving business is quite a complicated and unpredictable process. Finding adequate financing is very essential for the business owners who don’t have enough resources to get the business off ground.
So, what is crowdfunding, and how does crowdfunding work?
Even though this investment concept has been there for a very long time, people with sphere capital have always gathered to invest in amazing startups with solid ideas.
One of the greatest things about crowdfunding nowadays is the fact that these types of platforms help startup owners in reaching the right investment groups or partners, quickly complete the validation process and later easily find potential customers.
To cut in short, the main goal of using crowdfunding platforms is to raise the required capital from contributors to complete production, push the product to the next growth stage.
Individuals that are not familiar with this fundraising concept will be surprised to see it goes beyond access to capital. For brand new startups, this fundraising type is a great option for social proof, idea validation. Besides, these platforms are amazing PR tools, for promoting products/ ideas, gaining visibility.
These platforms have helped around a million startups to raise over $3.2 Billion. This is a revolutionary way startups or small businesses raise money they need. Crowdfunding has become an amazing tool for successful fundraising like never before. It is on track to transform the whole finance landscape and surpass $34 billion in 2015.
Crowdfunding VS. Other startup fundraising types
Usually, if you intend to raise money for your startup, you prepare a business plan, pitch, everything else you might have, and look for angel investors, VCs, or even consider bank loans. In this case, investment opportunities are somehow limited as they depend on some key decision-makers.
Crowdfunding changes the game rules, provides a platform to display the business to a larger number of people. This, as a result, gives you a chance to have more interested parties, who are willing to invest in potentially growing businesses.
Now, let’s go through the platform types, understand how to pick the right one for your startup.
Initial crowdfunding concept was donation-based, like Kickstarter and Indiegogo. Contributors were offered something tangible in exchange. It could be “the first to receive the product”.
Debt-type is especially common for early-stage startups. This lets them act as private lenders, spreading risk by pooling their funds to lend for a wider variety of needs. This can include car loans, business loans, debt, and more. In this case, investors are repaid with monthly payments.
Traditional startup investment is quite similar to this type. Startup offers stock in return for invested money.
Crowdfunding Pros, Cons
In case you have decided to use crowdfunding for business instead of angel networks or VCs, check the pros and cons before diving deep into the wider investment pool.
- Reach- platforms give access to potential contributors. It makes interacting and engaging faster and easier, helps to spread startup idea.
- Marketing & PR– introducing a product or business idea to masses in the right way can be very expensive, besides you might not have the right expertise to do that. Crowdfunding lets promoting campaigns, increasing additional traffic.
- Validating concept- showcasing ideas on the platform helps quickly validate your idea. No matter how good you perform market research, with the help of contributors, you approach the problem from a completely different perspective, understanding when to pivot.
- Crowdfunding may not require giving equity– in case of buying products via crowdfunding platforms, random people become “so-called investors”. The good news is that you are not giving any equity, just perks like “be the first to receive the product”.
- The platform helps to build market– when showcasing a product campaign, you find and target the right community, which later becomes product early adopters.
- Crowdfunding platforms are full of scammers
Scammers are considered the main issue crowdfunding concept faces. A lot of businesses have successfully raised capital but couldn’t complete the product execution. Contributors in this case see no progress and this, as a result, reduces the trust level between startupers contributors.
- Crowdfunding can be a hard process
The opinion that products showcased on crowdfunding platforms get funded with the required capital is a total myth. The reality is that there is a lot of work. You need to have a properly developed strategy for promoting. Poorly marketed products may fail not because the product was bad, but because it wasn’t promoted in the right way.
- Reputation damage
Failed products can damage business reputation, especially if people have already donated to support your business.
- Copyright problems
Don’t forget to copyright business idea before launching it on the platform. If you don’t protect the product/ idea seriously, someone might steal all product info, post it somewhere else to raise money.
Consider the following factor that may help in creating a successful crowdfunding campaign:
- Consider having network, who are ready to donate and inspire others to donate as well
- Prepare some really cool perks in case if you are giving perks in return for donation
- Showcase a solid and serious explanation and business plan of how donated money will be used for the startup growth
- Demonstrate you have skin in the game because of the personal funds you have already poured into the business.
- Record a video pitch and keep it simple and short, add a call to action
- Don’t make promises you can’t keep during the campaign
After you have decided to raise money via crowdfunding platform, it’s time to do research and pick the right one:
Before making a final decision, see the list of options here.
Below you will find the top 3.
Project owners have successfully raised $3.7 billion. More than 143,000 projects are funded. The platform applies the following fees: 5% fee from your collected funds, additional 3-5% processing fees.
$1 billion was raised via this platform for more than 650,000 projects. The platform charges 5% fee for the projects.3. CROWD SUPPLY
The average raise for this platform is nearly $66,000 (around 70% of the projects are funded). The company claims that 100% of their projects have been successfully delivered to the backers/ contributors.