Starting up a business is a hectic job as it is and adding to the worries of the owners of startups is the limited finance and capital that is available to them. Not everyone has the money lying around to finance the setting up and the subsequent operations of a new business. In fact, most people do not have access to such stupendous reserves of cash that they can inject into their startup and be set until the time their business establishes in a stable stream of revenue.
In reality, most entrepreneurs rely on some sort of financial support in addition to some savings of their own. Some business owners take out loans. For instance, some gather the support of big-time venture capitals. Same as, some sell shares, and still, others turn to friends and families.
In short, these are all legitimate ways of acquiring the capital a business needs to set up a branch. Along with, there is still one more major source of finance. As a result, it often catches dust in the back of business .owners’ minds and is overlooked. If you are not familiar with the concept of crowdfunding, let us break it down
What’s good about crowdfunding?
If we were to say that crowdfunding is one of the most intuitive ways of raising the necessary finances to propel your startup into existence and operation, this would be an understatement.
Moreover, crowdfunding eases the pressure on managers. It ensures quantifiable results right from the outset of the venture, as happens all too often in the case of venture capitalism and fundraising. This is because even though there is a large group of investors, the power held within the company is not diluted.
Undoubtly crowdfunding pave the way for an influx of funds to get you up and running. In addition, it also allows you to generate a loyal audience that believes in your vision and sticks by it before you have even set up shop!
What types of crowdfunding can you avail of?
- Securities-based crowdfunding- also known as equity-based campaigns; this type of crowdfunding enable individuals to invest in startups. In a securities based campaign, your private company or startup promises the investors stock or other securities in return for their investments
- Reward-based crowdfunding- this is quite self-explanatory. In this type of campaign, individuals are essentially investing in your startup. In exchange, for access specific rewards pertaining to the project they are investing in
- Donation-based crowdfunding- this is a type of campaign where, in return for their investment, your startup will have to provide the investors with something tangible; such as the first products of your company will be sent to your investors
- Peer-to-peer lending- This type of campaign entails you as the owner of a startup acquiring loans. You are acquiring it directly from other people without the intermediation of a bank or other financial institution. This is oftentimes also referred to as debt crowdfunding.
- Hybrid models- This is where you have the option to combine the many types of crowdfunding campaigns to kick start your venture.
How does crowdfunding platform work?
Today, everything happens on the internet, that is where you will find the best means of crowdfunding too. Crowdfunding platforms are sites that provide a space for the fundraisers and their prospective investors to interact with one another. Crowdfunding platforms also enable financial pledges to be made, and ultimately for the pledged amount to be collected.
If your crowdfunding campaign is successful, the crowdfunding platform that acts as the vehicle will charge you some amount of money. In return will be responsible to ensure a secure and easy to use service.
When you do your research, you will find that many of the crowdfunding platforms on the market have an all-or-nothing funding policy. As a result, you only get your money if you manage to reach your stated goal. Investors money is returned, in case of the fall short from the target amount.
What are the different costs associated with crowdfunding?
- Product Prototype- Regardless of whether you have started your business or not, you will still have to develop a product prototype. This should convey all the features and specifications of the product. The cost here is that of manufacturing one-off prototypes. This is still, however, necessary so that the investors have a good idea of what they are investing in. As a result, they will be more likely to take you seriously
- Visual Content– Using dynamic content such as stunning imagery and engaging videos. The content is centred on your product. It will help your investors to visualize the product.
- Platform Fees- In exchange for providing you with the platform that enables you to interact with prospective investors to raises the necessary funds. Hence, the crowdfunding website will charge you a certain amount; usually a set percentage of each individual pledge and sometimes even processing costs
How to know which crowdfunding platform will best serve your needs?
The success of any crowdfunding campaign is highly dependent on the platform. This is why it is important that you select the platform that is the perfect fit for your needs.
So before you decide which crowdfunding platform you would like to settle with, you must diligently conduct research. Compare your options and find the platform that offers the best costs. In addition, has a network of investors that are best suited for your venture. As a consequence, the platform that will help you maximize your visibility.
Below are some of the additional considerations you should keep in mind when selecting the right crowdfunding platform for you:
- Your specific crowdfunding goals
- Your crowdfunding campaign’s purpose
- The crowdfunding platform’s structure
- The platform’s customization options
- Restrictions of the platform
Check out the crowdfunding platforms we reviewed so far on Crowdfunding Platforms so far.