All You Need to Know About Crowdfunding

Imagine this: You have always wanted to be an investor. So, you have a business plan you’ve been putting on hold for years, and now you’re willing to plunge into the murky waters of the business world.

Yes, you have some capital, but it’s not enough to get your business off the ground.

Fortunately, today you don’t have to rely exclusively on your bank for financial help. The web is thriving with crowdfunding sites.

You can find financial assistance through crowdfunding sites whether you’re looking to fund your small business, raise funds for an NGO, or pursue a business-related hobby.

We will discuss all the pros and cons of crowdfunding in this blog post. We’ll also take a closer look at some of the crowdfunding sites available today, just in case you need to sign up with one.

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Crowdfunding definition

Image source Slideshare

Crowdfunding is a method of raising funds for a venture or a project from many people who contribute a small amount each, usually through the internet. Artists, musicians, and filmmakers have effectively raised money and promoted brand awareness through crowdfunding.

Example:

Do you recall the popular TV show, Veronica Mars? It continued playing on the screens seven years down the line after it was canceled in 2014. It was only possible thanks to a kick-starter campaign in its amazing director started in 2014.

The show’s crowdfunding campaign was so effective that it raised a whopping 5.7 million. It’s so amazing that 91,585 people supported the campaign in just a single month.

The director received the funding plus the free publicity as an icing on the cake.

Crowdfunding is an excellent way for small businesses to raise funds in exchange for rewards, equity, debt, or free of charge.

Business crowdfunding can offer you quick access to money. Still, it needs a robust promotional plan, increased transparency, and the willingness to give up a portion of your company.

Here are some of the advantages you will enjoy if you consider raising funds for your dream venture or project or your business through crowdfunding.

Advantages/ benefits of crowdfunding

It can be a cost-effective way to raise capital with no upfront costs.

Pitching projects or businesses on the internet can be a powerful form of marketing that attracts media attention.

When you share your idea, you can frequently receive feedback and expert advice on enhancing it.

Investors will track the progress you are making, which might help promote, which might help promote your company via their popular networks.

Your investors can become your loyal customers as they can be personally attached to your brand. In addition, they have seen it grow from scratch through the funding process.

It is a reliable funding option if you have grimly struggled to get conventional funding or bank loans.

It is a fantastic way of gauging the public’s reaction to your ideas/ projects.

If people are eager to invest, it’s a sure sign that your idea will do wonders in the market.

Nonetheless, crowdfunding has its fair share of drawbacks, just like anything else in the universe. Let’s look at some of them.

Cons/ Disadvantages of Crowdfunding

When you’re on your selected platform, you’ll need to work hard to generate interest in your project before it launches. As a result, you’ll likely need significant resources in terms of time or money.

Suppose you haven’t secured your business idea with something like a patent or copyright. In that case, someone else might come across it on a crowdfunding site.

If the rewards or returns are incorrect, it may insinuate that you’ll give too much away to your investors.

If you do not meet your funding goal, any funds pledged, you’ll have to return all the finances to your investors and walk away empty-handed.

Failed projects endanger your company’s reputation as well as the people who have pledged cash to you.

How Crowdfunding Works For Entrepreneurs

For some entrepreneurs, crowdfunding is the simplest method of raising funds for their small businesses.

If you have an incredible idea, that can be the next big thing. Still, you can’t get investors through the conventional way; pitch your idea on a crowdfunding platform.

Your pitch should be clear, precise, and very interesting, as investors will gauge your idea based on the pitch you have prepared.

In exchange for funds, you can provide your investors with rewards or company securities.

Crowdfunding also works for Individuals.

Aside from charity fundraisers, investors, and startups, individuals can use crowdfunding platforms to raise funds for themselves.

People use the internet to crowdfund their college tuition or even to pay off outstanding hospital bills. Others use the process to raise funds for college admissions, travel, and even debt repayment.

Though crowdfunding is an excellent way of raising cash for your business, you should know which type of crowdfunding suits your startup.

Below are the common types of business crowdfunding.

Real Estate Crowdfunding

Real estate crowdfunding, also referred to as property crowdfunding, raises funds for real estate investments. You contact a group of investors and ask them to contribute a small amount of cash to fund projects.

In a nutshell, it is a way of raising funds that enables small real estate investors to participate in large-scale funding projects.

Types of Real Estate Crowdfunding

Crowdfunding real estate is one of the best methods of building wealth quietly and strategically.

Real estate crowdfunding investments include

Common Equity
Preferred Equity
Debt Equity

See each type of real estate crowdfunding side by side in the table below:

Types of Crowdfunding

Equity Crowdfunding

In Equity crowdfunding, traders raise funds for their small businesses by selling stocks and receiving capital in return.

Startups raise funds by selling securities like revenue shares, convertible notes, and debt shares.

The equity crowdfunding platform Wefunder is a perfect example.

From the corner cafe to the pharmaceutical company researching the benefits of growing plants, the site is open to every form of enterprise.

There are various options for the equity somebody will receive in return for their investments.

Debt Crowdfunding

Debt crowdfunding, also known as “marketplace” funding, is when an entrepreneur borrows cash from other people rather than a bank. You borrow at a fixed annual percentage rate, and the loans are structured in the same way as conventional business loans.

Reward crowdfunding

With reward crowdfunding, also called non-equity crowdfunding, investors receive rewards such as t-shirts, coupons, mugs, concert tickets, etc., for their investments.

There’s no doubt you’ve heard of Kickstarter, where tens of millions of people have contributed to projects (maybe you’re one of them).

Your campaign is open to anyone who finds it persuasive and wishes to donate. Irrespective of whether you seek funding to launch your video game, write your book, or whatever else you think will attract investors’ attention.

Donation Crowdfunding

As the name suggests, donation crowdfunding is for individuals who want to raise funds for a charitable cause or personal purposes.

Investors contribute money for social good or a particular charity project without expecting anything in exchange. GoFundMe is one of the well-known donation-based crowdfunding websites.

Crowdfunding sites

Many crowdfunding platforms are more suitable for product development. In contrast, others are ideal for artistic pursuits, and some do not look to gain from your investment.

Many crowdfunding websites will collect all funds as they come in, while others won’t take any until the target amount is reached.

Here are the top crowdfunding sites you can use to finance your small business.

Patreon

Patreon is a monthly subscription website where contributors and supporters make monthly donations rather than making a single bulk payment.

You may contribute to projects for as little as $1 a month or as much as you like. It’s similar to a membership that’s been donated.

The aim is to help a creative enterprise or artist on an ongoing basis, just as you would support your favorite band or singer.

Crowdcube is a platform for equity crowdfunding that allows you to turn your family, friends, fans, and customers into big-time investors.

Upon receiving your pitch, they will assist you with developing realistic goals, a reasonable valuation, and an outstanding communication strategy to help you gain access to Crowdcube’s community of investors.

Once you reach 20% of your goal, your pitch will go public. It takes 22 days for a rise to reach its target. Crowdcube’s legal team will step in when you get 75% funding to assist you in closing your round as quickly as possible.

Price: There are no fees associated with listing your company on Crowdcube. You will be charged a success fee of 7% on the amount you successfully raise, as well as payment processing fees.

Kickstarter

Kickstarter connects musicians, filmmakers, and designers with the resources they need to make their brilliant ideas a reality. Since it gave out its baby cry in 2009, the company has successfully assisted 15 million people in pledging $3.7 billion to fund over 143,000 projects. You must meet your objectives within the time frame specified, or everyone’s money will be returned.

Price: Creating a project on Kickstarter is free, but if it is successfully financed, Kickstarter deducts a 5% fee from the funds collected. There will also be processing fees ranging from 3% to 5%.

Closing Thoughts

Now that your creative juices are flowing join a crowdfunding site and make your dream a reality. Do not spend another sleepless night wondering how to finance your startup. Crowdfunding is undoubtedly your savior in a time of need.