Crowd funding is a method of raising capital that has recently become popular around the world. It’s very helpful for entrepreneurs because if they’re denied bank loans and can’t secure venture capital, they can collect money from everyday people who are interested in investing.
An entrepreneur may choose to raise money from crowd funding instead of trying for a bank loan or venture capital. It gives them more freedom and choices. Before you start crowd funding, however, it’s important to understand how crowd funding works.
What is Crowd Funding?
Crowd funding is raising money collectively through friends, family, individual investors, and customers. Basically, anyone who wants to donate to your project can through crowd funding. This concept sounds new but it’s been around since the 1700s. Modern-day crowd funding mostly takes place online where it’s easier and faster to gather funds. The Internet gives you access to people all around the world, not just people in your immediate community. There are several platforms, such as Indiegogo and Kickstarter, that provide you with the means to raise capital.
How to Implement Crowd Funding?
If you want to gather capital through crowd funding, you must choose a platform that you think is most suitable for your business. Then, prepare a strategy for reaching your target audience through the campaign. During the preparation phase, you should dedicate time to building your network too. The more followers you have on social media and the more connections you make with other industry professionals, the more likely it is you’ll reach your funding goal once you launch the campaign. When you’re ready to launch, create a compelling campaign page that has pictures, videos, and tells a good story.
Why Crowd Funding is Helpful
Entrepreneurs, inventors, business owners, and everyday people make use of crowd funding. This method of raising money has been used to fund new product lines, startups, business projects, and inventions. It has also been used for charities and helping someone overcome a disaster like their house burning down. Crowd funding is helpful for entrepreneurs and small business owners because they usually struggle to find enough funds to support a project that will grow their businesses. With crowd funding, they can secure capital without having to pay it back or give some power to the investors.
Ways in Which Crowd Funding Can Help Your Business
Most crowd funding platforms ask that you give something to donors, such as a free copy of your new product after you’ve raised enough money to mass produce it. This is great for your business because you will already have a pool of customers who receive your product upon launch. If they like the product, then they will likely become customers of your business and buy from you in the future. It also encourages word of mouth marketing. They may talk about the product with people in their network, whether it’s because they love the item or think it’s cool they played a role in helping an entrepreneur bring their creation to the market.
It utilizes the collective effort of a large number of everyday people. And these people won’t watch over your shoulder and make suggestions on how to run your business like some venture capitalists do. As long as you use the funds exactly as you told donors you would and deliver everything on time, you won’t have many complaints or experience pressure from investors.
Saving Time and Money
Crowd funding can save you time and money. When you seek capital from banks, angel investors, and venture capitalist firms, it can take months before you find someone willing to invest. The process of collecting funds through a crowd funding platform is usually shorter and less expensive. You must still spend time on preparation, but it can be a lot more fun setting up your campaign page than gathering the necessary documents for traditional investors. In addition, you don’t have to pitch or present to several different investors. It is centralized in one place: your campaign page. Once you have it set up once, there’s nothing else you need to do besides link to it while promoting and asking your network to support your project.
Knowing Your Ideas
Setting up a campaign page can help validate or refine your idea. If you planned well and didn’t reach your fundraising goal, then it may indicate the product wouldn’t sell in the market. You can find clues as to why it wasn’t a big hit like you thought it would be by paying attention to the questions and comments from others in response to the campaign. By listening to the questions people ask you, you can refine your offer too.
Fighting the Good Fight
You have more time to run your business when you seek to raise capital through crowd funding instead of traditional means. For instance, you don’t have to reprint documents and compile binders each time there’s an update. Making an update to your campaign page is less time-consuming. You also don’t have to drive anywhere to give presentations. Your campaign page is the presentation, and it’s available 24/7 for anyone in the world to see.
Joining a Growing Trend
According to Crowdfunder research published on Forbes, crowd funding surpassed angel investing in 2015, and it sharply increased from 2013-2015. Venture capital investments increased from 2013 to 2015, but was plateaued from 2014-2015. Some predict that raising capital through a person’s network will eventually surpass venture capital. This is good news for your business because it shows there’s great potential for you to find the money you need through this innovative form of securing funds.
Crowd funding is a way of raising funds that some entrepreneurs have utilized successfully for their businesses. It works by setting up a campaign page on a crowd funding platform and offering something in return for donations. Entrepreneurs commonly offer t-shirts or their product upon launch in exchange. Crowd funding is very beneficial because it provides an easier, less expensive method of funding a new business, product idea, or project.
Have you ever used crowd funding before? Share your experiences in the comments below. Also feel free to ask any questions you may have about crowd funding, so we can clarify for you.
Images taken from depositphotos.com.