Crowdfunding explained : The Complete Guide

Many people have grown their business through crowdfunding. It is raising business finance continuously. More and more people are getting attracted towards crowdfunding investment throughout the past few years. It is a perfect platform for the starters to grow their business rapidly.

What is Crowdfunding?

Financing a large business by a large number of people investing small amounts of money is known as crowdfunding. Crowdfunding websites and social media are putting together investors and people in business together to invest in a large business and make it prosper. This platform allows investors to be a part of a big company by investing in it.

Basics of Crowdfunding

Like other investment platforms, crowdfunding platforms also have a limitation. This regulation prevents the risk of losing money for average investors. The reason for this is to save investors from a massive loss of money in case of failure of the business. It allows entrepreneurs to raise money for their project from investors.

How Investors Benefit from Crowdfunding

crowdfunding benefits

Investors have a lot of benefits in crowdfunding. Most platforms give reward to investors. Investors are allowed to the launch of a new product and receive the reward for their investment. For example, if investors are investing in the textile industry. At the launch of their new garments such as dress. Investors are likely to get the dress as a gift.

Video games companies are a very famous example of crowdfunding. Gamer investors get an updated version of the games as a gift at the launch event.

Investors also benefit from equity-based crowdfunding. Investors get an equity position as a result of the investment in a company.

The Future

In the beginning, the general public investment in private companies was banned. The reason for this is to avoid scams and frauds. It made it very difficult for the businessmen to start their business and attract the general public to invest in it. But as of September 23, 2013, this ban was lifted, and private companies were allowed to run campaigns on their websites and social media to attract the investors.  The change in the policy of public investment allowed many early entrepreneurs to attract the target audience for investment. It even gave those an opportunity who doesn’t have any friends or family members to invest in the startup business. Private companies started using emails, social media and many crowdfunding platforms to offer investment to the investors.

Another restriction that crowdfunding faced was that if a person doesn’t have a net worth of $100k, he/she can’t invest. But after this restriction is lifted, everyone will be allowed to invest in private companies with some regularities. People with less than $100K income can only invest 5% of their net worth per year; people with more than $100K, can invest 10% of their net worth per year.

There are also some regulations for private companies that they can’t raise more than $1MM per year. They also have to report annually to the SEC and show it to the investors.

Under all these regulations, the future is very bright for crowdfunding. Investors and companies can get advantages through this. People in business will be able to raise funds for their business, and the investor will be part of a more prominent company within days.

Reward-Based Crowdfunding

Reward-based crowdfunding is a perfect option to attract investors. It has been an efficient and effective way to start up a business. Before starting reward-based crowdfunding, you must be prepared for every question from your customer. You need to convince your investors that how your product is going to change the world. First, you need to tell them the problems that the world s facing without your product. Then you need to convince your investors that your product is the best solution for the problem. In the end, tell them about the market and explain that public need your product and it will be successful. Campaign about your product through video presentation and tell them briefly about the product. To run successful reward-based crowdfunding, you need to offer rewards to the investors for their investment. The rewards can be the product itself; services provided by the company or investor’s name on the company website. Always keep in mind that you want to raise money for your product; no one knows your product better than you. Explain everything about it to your investors and win their confidence and trust.

Equity Crowdfunding

Equity Crowdfunding is for those who want to raise more money than using reward-based crowdfunding. You offer your investors a share in the business if they are spending a large sum of money on it. You can also choose to return the amount of money they are investing, but the amount can be decided later. To run the equity crowdfunding campaign, you need to consider all the factors that can affect the growth of your business and then according to that present the terms and conditions for the investors to invest in the company. It is different from reward-based crowdfunding. You need to prepare for everything before the final launch of your campaign. More than your words, your reputation is more important for your customers to invest in your business.

Is it Right for You?

Crowdfunding can be beneficial for you to convert your ideas into business and to convert your samples into products. It can be a good source of finances for your business. Before setting up your crowdfunding campaign, you should tell everyone around through emails, social media and websites about the campaign. It can be an excellent source of funds for you to start your business.

Summary

Crowdfunding is beneficial to grow the business for the starters. It can be helpful for private companies who don’t have any potential investment. You can run a successful crowdfunding campaign by calculating the right amount of funds you need and by making a strong presence for your product. The more detailed and compelling information about your business/product can attract more investors for you. Crowdfunding can provide you with all the financial resources you need for your business.

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