In recent years, startups and small business owners have seen a huge surge in crowdfunding. Nowadays, one of the most popular ways for business owners to fund their business operations without having to go to a bank to apply for a traditional loan. Of course, crowdfunding doesn’t stop anyone from turning to a bank for a business loan.
However, it only makes sense if someone carefully plans their roadmap and meets all of their financial needs with an effective crowdfunding campaign on the right platform. Anyone who thinks crowdfunding is just a way to raise funds from many different people needs to reconsider.
Crowdfunding is much more than just raising money
Much easier than traditional financing
Traditional financing is quite a challenge for entrepreneurs and small business owners. Once you get to a point where raising funds is required for your business, turn to wealthy people, angel investors, venture capitalists, banks, and other lending institutions to invest. The problem here is that you start at the broad end of the funnel and narrow your options from there to reach the narrow end of the funnel, ie finding the right investors. If you can’t make a deal with your last option, you will end up wasting all your efforts and time.
On the other hand, crowdfunding is the polar opposite of traditional funding. You start at the top of the funnel, create your crowdfunding campaign and get discovered by the right people. Anyone who finds your concept attractive and appealing invests. You don’t have to go door to door to find the right person to invest in you, your business and your idea. This makes crowdfunding much easier than traditional financing.
Better market presence
To increase your chances of attracting the right investor to your side, you need to be present at every venue, seminar and meeting where you think you have a chance to meet the potential investors. However, there is only so much you can do in the limited time you have before someone else copies your idea and benefits from it. On the other hand, if you decide to use crowdfunding to financially boost your business, you don’t have to rely solely on your efforts and marketing reach. The first step in crowdsourcing is finding the right platform as there are many to choose from.
You need to choose your crowdfunding platform based on its popularity and reliability with the public. In short, you benefit from the market reach of the platform. If your crowdfunding platform is popular across multiple continents, you can expect your funds to come from all of those places.
Less risky than traditional funds
One of the biggest problems with traditional financing, especially venture capital, is that such financing comes with a high level of risk. Venture capitalists are individuals or institutions who are often more interested in their own financial gain than in seeing your business grow. Their purpose in investing in your business is to double or triple their investment. Because of this, they often have very strict regulations on their investments. If they have doubts about the success of your idea, they will often try to give you the money as a repayable loan – the rules will still be strict.
If they think your product/service will be a big hit, they will try to get permanent licensing deals or try to take as much equity out of your business as possible.
People who crowdfund your business may not even ask for a stake in your business. Their contributions can be as little as $5 and they may not even expect anything in return. Sometimes they can make large investments without asking for a lot of equity. On many occasions, their rewards are as simple as a free sample of the product.
Brings professionalism out of you
Just because crowdfunding is less risky than traditional funding doesn’t mean you can take it easy. Asking the world to invest in your concept is serious business and you must do your best professionally to convince people to invest in you. The first thing you need to do is to create a proper business plan. Second, you want to have a team of the right professionals on your side that people can look to and trust. If the atmosphere in your team is negative, people will not invest a single dollar in you. You must also have a good explanation of where you will spend the money raised.
If you have prototypes, bring them to the front. Create videos to showcase your technology. Make sure your product/service is a solution to an existing problem. Don’t create a problem and then fix it with your product. Angel investors often visit crowdfunding platforms and need to make sure they are investing in serious people and businesses, not a hobby.
Helps you build a follower community
Many investments on crowdfunding sites come in the form of small contributions. These people aren’t investors, they’re regular people who like an idea and want to see it put into practice. They believe that your idea can solve one of their problems or maybe make the world a better place. If you can convince them that your idea will do one or both, they will actively invest in it. These people are early adopters of your technology/product/service and will also act as word of mouth marketers for your brand.
It is no coincidence that crowdfunding has become one of the most popular methods for new businesses and entrepreneurs to crowdfund their early growth, marketing and expansion. They must see some advantages in crowdsourcing their efforts over traditional funding. If you are considering the same route, the first piece of advice for you would be to choose a platform with trust, reputation and reach for your crowdfunding campaign.