Crowdfunding Basics

By definition, crowdfunding is a method of financing a business enterprise by collecting monetary contributions from a large number of people. It is achieved mostly with the use of the internet through websites that allow entrepreneurs to raise money; but the concept can also be realized by other means.

Recently, crowdfunding has become a trend in the business world, whether it is a start-up or a successful business. According to Massolution, a US-based research firm, entrepreneurs have raised billions of dollars with more than 600 crowdfunding platforms around the world. There is no doubt that crowdfunding is here to stay and represents a major new source of funding for innovative startups, non-profit organizations seeking contributions, and artists seeking some recognition for their creative efforts.

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

Crowdfunding can also be used to collect loans and fund royalties. For example, the LendingClub site allows members to invest and borrow directly from each other, cutting out the bank middleman in the transaction. The idea is to bring entrepreneurs and investors together. It also aims to sell company shares or ownership interests in the company on crowdfunding websites, just like an IPO without the limitations.

What makes crowdfunding worthwhile is that it provides startups or early-stage businesses with the launch of a product or service without exposing the entrepreneur to the whims and quirks of the investor or loan officers. Furthermore, a successful crowdfunding campaign not only provides a business with the necessary cash, but also creates a customer base that feels it is their duty to patronize the business because they have a stake in its success.

Crowdfunding definitely has a huge advantage for a budding entrepreneur, but it’s not without its own advantages. For example, it could be a huge waste of time if the campaign is not well planned. It could be even worse if you achieve your goal but then realize you underestimated the amount of money you needed. Your integrity is not only on the line here, customers can also sue a company if it doesn’t keep its promise.

Another thing is that when a bank or an investor finances a company, they provide entrepreneurs with business mentoring, but they lose it when they opt for crowdfunding.

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

Get in touch with a group of friends, family and supporters who share your passion for business and are willing to help kick-start the campaign by giving and encouraging others to give.

Create a compelling business plan and clarify how the money will help your business.

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

If you are giving incentives in exchange for money, make sure the incentives are worth it. Avoid t-shirts if it’s not in the clothing category.

* For example: Indiegogo, Indiegogo generosity, Kickstarter, Fundable,…

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