Are you seeking funding for your business? If so, you may or may not want to consider the crowdfunding route. This article will discuss who should be using the crowdfunding method for raising funds for a product/service.
Many entrepreneurs and business owners need to find funding for their startup or company at different stages of the business. While there are many options available, it can be hard to decipher which would be the correct choice for your specific scenario. There is a lot of buzz around the word crowdfunding, and you can find many examples of successful crowdfunding campaigns which could be intriguing for someone that could benefit from this method. But is it going to be the right choice for you? Well, in this article, we will explore some of the pros/cons and some great use cases for crowdfunding. This will just be for entrepreneurs since charity-oriented campaigns work differently.
What is crowdfunding?
First, we need to fully understand what crowdfunding really is. It’s not like the traditional means of funding where you can be pitching to investors. Rather, you are pitching to the crowd via the internet to fund your project or company. There are many ways in which you can crowdfund. You can raise money via rewards/donations, equity/investments, and debt/loans. There are many different scenarios that crowdfunding can be used for along with the many different platforms and technology.
When should I NOT consider crowdfunding?
Since crowdfunding is so accessible, it can be hard to determine when not to use it. Although there are many great scenarios to use crowdfunding, there may be times when it would not be necessary. Crowdfunding can cost money and time in marketing, especially if you are utilizing the rewards/donations based methods for a product.
The Cost of Crowdfunding
Many crowdfunding newcomers think that you can raise money via crowdfunding without having money. Although this could be true for a donations based campaign, it does not necessarily apply for those that are using crowdfunding for a business. Unless you are working directly with the right platform to help you market the campaign, you are mostly on your own for the marketing aspect. Marketing will cost money in order to get the ‘word out’ about your product. If you are running a rewards-based camping, much like you would see on Kickstarter, then prepare to spend some time and money.
With anything, you get what you pay for. Crowdfunding can help you get your business started, but you will need to pay a price for the high returns. If you don’t have access to this, you might be a bit too early to crowdfund. Another more traditional method of funding can act as an initial boost to give you the means to run a crowdfunding campaign. You may find a private investor or take out a loan in order to run such a campaign. There are many options. So don’t be discouraged, even if you are not ready to run a campaign now, doesn’t mean that you can’t run a campaign later.
The cost of running a campaign is the biggest reason why some are not deciding to go this route. For those that are not marketing experts, then the marketing aspect can sound treacherous. This, however, should not be an issue as there are plenty of well-established marketing companies that specialize in crowdfunding.
Why would I use crowdfunding over traditional funding?
We call traditional funding anything that is not considered crowdfunding. It has its purpose, and has helped many succeed with their funding goals, so why would you deviate from these methods?
Crowdfunding has several distinguishable benefits that you can’t get with traditional funding. It allows the general public to move their wealth in a way that used to only be accessible for wealthy investors. Whether you are using Kickstarter or investing via an equity campaign, there are many platforms that will allow non-accredited investors to help fund a product that they believe in. It provides power to the crowd and a real-world test environment for your company. While being in the early stages of your product or company, you can attract real buyers and gain funding. It’s a win-win situation. Instead of spending time with investors (although they may provide many benefits) crowdfunding will simultaneously provide funding and get your product/service in the hands of real buyers.
This is why crowdfunding is so powerful and has been a great resource for many companies and founders. If you have the means to do it, you’ll find that there are many options available which traditional funding can’t provide.