Fundamentals of Crowdfunding

By definition, crowdfunding is a method of financing a business venture, idea, social project, or product, by raising monetary contributions from a large number of people. It is mostly achieved with the use of internet through websites that allow business people raise money, but the concept can also be carried out through other means.

Of recent, crowdfunding has become a trend in the world of business, be it a startup or accomplished businesses. According to, Massolution, a US-based research firm, entrepreneurs have raised billions of dollars with over 600 crowdfunding platforms around the world. There is no question that crowdfunding is here to stay, and it represents a major new source of funding for innovative new businesses, non-profits seeking contributions and artists looking for some recognition for their creative efforts.

Some of the numerous crowdfunding platforms available are Kickstarter, Indiegogo, LendingClub, and Fundable among several others. On these platforms, donations are sought in return for special compensation. While each site offers their unique terms, the general concept is the same across all the platforms.

Crowdfunding can also be used to collect loans and royalty financing.  For example, the site LendingClub, allows members to directly invest in and borrow from each other, removing the banking middleman in the transaction. The idea is to bring business owners and the investors together. It also aims to sell company shares or ownership stakes in the company on crowdfunding websites, just like an initial public offering without the limitations.

What makes crowdfunding worthy is that it provides startups or early stage companies to launch a product or service while not exposing the entrepreneur to the whims and quirks of the investor or loan officers. Also, a successful crowdfunding campaign not only provides a business with needed cash but also creates a base of customers who feel it is their duty to patronize the business because they have a stake in its success.

Crowdfunding definitely has an enormous advantage to a starting entrepreneur but it is not without its own perks. For instance, it could be a huge waste of time if the campaign is not well planned. It could even be worse if you meet your goal but then realize you underestimated how much money you needed. Your integrity is not only at stake here, customers can also sue a business if it fails to deliver on its promise.

Another thing is that when a business gets funded by a bank or an investor, they provide entrepreneurs with business mentorship but they miss out on such mentorship when they opt for crowdfunding.

The following are some features that can guarantee a successful crowdfunding campaign.

Reach out to a set of friends, families, and well-wishers who share your business passion and are willing to help put the campaign in motion giving and encouraging others to give.

Come up with a convincing business plan and clarify how the money will help your venture.

Raise your level of seriousness by showing the people how much you, as a business person have invested your personal funds into the business.

If you’re giving out incentives in return for money, make sure the incentives are worth it. Avoid t-shirts if you are not in the apparel category.

 

* For example Indiegogo, Indiegogo generosity, Kickstarter,¬†Fundable,…

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