Crowdfunding has made headlines around the world with its success stories, but is it right for your business needs?
From fueling small business ideas and technology concepts to financing Broadway concerts and popular movie releases (Veronica Mars), crowdfunding loans are under the spotlight worldwide. If you don’t know much about this phenomenon, or you haven’t considered it seriously for your business yet, now’s the time to catch up and make sure you don’t miss out on a great opportunity to support your business.
Why is crowdfunding so great? On the most basic level, it provides access to what could be considered free money. Beyond that, it’s one of the best ways to get valuable feedback on your product or idea at the beginning stages of your business development. Read on to figure out whether crowdfunding is right, or not, for your business model.
Initially, crowdfunding started out as a way to support social causes and help entrepreneurs raise money to support their business projects. The most popular crowdfunding platforms like Indiegogo and Kickstarter provide not only a way to access “free money,” but also totally free feedback and marketing for your projects.
The way crowdfunding works is pretty straightforward, and is pretty much right there in the name: a “crowd” of people who believe in your project or idea get to “fund” it in one of 3 different ways. The funding type determines the cost to your business, and naturally, each option may work better or worse for a particular business model.
Lump sum donations are the first possible way your business can be backed by the crowd. People who provide donations don’t expect anything in return. This is as close to free money as you can possibly get.
Second, there are pre-sales and rewards, where all the people who fund your idea are essentially buying a service of the same value once your project goes live. You are likely to achieve your goals much faster by using this method. Why? Giving something in return for a person’s investment can help you craft great calls-to-action, which will stimulate many funders.
Lending & Equity Crowdfunding
In this model, you either have to repay the crowdfunded money back according to an agreed-upon schedule, or sell a portion of your company to the investors. This method is mostly used by small and medium-sized businesses, which already have a good following and can more easily get investors to trust them with their money.
Free Money and All Other Major Benefits of Crowdfunding
Just like the success stories suggest, crowdfunding is possible and works, but it involves a lot of hard work and planning! In order to play hard, you have to work hard. And don’t despair, there are products, businesses and ideas on these platforms to prove that if you put in the effort, you have good chances of succeeding.
This financing method naturally creates a virtuous cycle of hype — it helps you get the word out in the first place, which helps you gain supporters, which in turn boosts the hype even more, and so on. It’s you presenting a great opportunity to potential supporters to ask questions, find your product through search, read more about it and naturally, support your campaign.
As a result, the list of advantages of crowdfunding continuously expand and include the following:
Raise money you don't have to repay
If you’re in for a few thousand dollars, your chances of success are pretty good. Most campaigns usually don’t raise over $10,000, which is fine if your goal is within that range. Best of all, if you’re operating under the first crowdfunding method and you’re receiving donations, this is money you will never have to repay.
Take full advantage of free marketing
A crowdfunding campaign will give you instant feedback on your idea, whether you’re developing a product or a service. Honest feedback early on is vital, because you can assess your products and change your concept on-the-go to guarantee its success in the long-run. And based on the positive feedback, you can further design your campaign to stress the most important benefits.
All in all, this is a great platform for advertising what you do in front of millions of people, which makes it priceless in the world of social marketing.
Crowdfunding Problems and Risks You Might Have to Tackle
Despite mass popularity, crowdfunding has some serious flaws, which many people overlook, but you can’t afford not to consider. The main problem is that with this alternative financing method, there’s no guarantee you will successfully reach your goal and raise the funds you need.
In fact, over 60% of crowdfunding campaigns fail to meet their goals, which means entrepreneurs waste both their money and time. If you don’t want to join the same sinking ship, learn more about how to avoid some of the problems that crowdfunding throws your way:
It's Key to Dedicate Time Wisely
To manage and succeed in reaching your crowdfunding goal, you need to make sure you are utilizing all possible channels: social media, offline marketing, print materials, etc. Maintaining and popularizing a campaign takes dedication and time, sometimes up to a year. For those businesses looking for a quick and effortless way to secure funds, crowdfunding’s probably not for you. But if you have the patience and the resources, we recommend going ahead at full speed for maximum results.
You Might Have to Invest Money
Ironically, many organizations invest money into their crowdfunding campaign. Sure, a great (money-backed) pre-launch and launch are thought to secure the results you’re after, but there’s no sure guarantee that you’ll win your investment back and get more capital at the end of the day. Crowdfunding platforms like Kickstarter run a model where you only get the funds once you’ve reached your goal. If you don’t get there, you won’t receive a dime. However, there are alternative platforms, which allow a partial payment plan, where you can access some of the funds raised, even if the fees are high.
Other Alternative Finance Methods Worth Your Consideration
Is crowdfunding right for you? Check out the top crowdfunding sites in Canada. Whether your answer here is yes or no, you are probably still looking into financing your endeavours. You will need capital to fuel the different parts of your crowdfunding campaign — get your advertising sorted and your design materials looking sleek and attractive.
However, if crowdfunding doesn’t seem to be the right fit for you, and you’d rather explore alternative financing options such as invoice financing or factoring, then check out what FundThrough can do for you. In both cases, we offer a line of credit designed especially for you — this B2B crowdfunding loan will set you on the right track to success.
“A line of credit to help you grow” is more than just a tagline. You receive funding based on the quality of your customers and invoices, not your financial status or history, which is ideal for expanding companies.