Dec 28, 2020

All About Crowdfunding

Crowdfunding has taken the world by storm over the past decade as an alternative form of business and personal financing. Made popular by the internet, crowdfunding encourages people within communities (and sometimes across the globe) to invest in business ideas and turn invention blueprints into viable products. Crowdfunding is also used to cover startup and operating costs to grow your equipment or get the materials you need. 

Crowdfunding could be the funding alternative that you are looking for to launch or expand your business. Learn more about this option and how you can take advantage of it.

How Does Crowdfunding Work?

The practice of crowdfunding refers to securing small amounts of capital from several individual sources that add up to a large amount. For example, if your business needs $10,000, a team of 500 investors could give you $20 each to reach your goal. 

Depending on the crowdfunding site you use, you would either pay these investors back or offer gifts and incentives to thank them for their support. 

When you look at various trends related to crowdfunding, you can start to see what makes a business successful at raising funds with the support of others. According to Startups.com, the average successful crowdfunding campaign is $7,000, and it takes about 11 days to secure that funding. The average crowdfunding donation is around $88, and companies that hit 30% of their goal within the first week are more likely to succeed. 

Tapping into internet virality is one of the keys to successful crowdfunding. If you can generate a lot of buzz about your project and get people interested, you can grow your exposure and increase the chances of securing the funding you need. 

Pros of Crowdfunding

There are many advantages to crowdfunding for your business, which is why this financing option has become so popular. A few reasons to consider crowdfunding to help raise capital for your business include:

Many crowdfunding sites try to mitigate risk for customers to encourage companies to create campaigns. You can use this information to your benefit when determining the right site for your crowdfunding campaign. 

Cons of Crowdfunding

While crowdfunding can be a great source of financing, it also comes with drawbacks. A few of these include:

As a whole, crowdfunding is extremely competitive and risky. While an investor at a bank or equity firm might evaluate your business objectively, private donors online choose which options they think are the best. There is also a finite amount of funding through crowdsourcing, which creates a limited pool for you.

Popular Crowdfunding Platforms

The success your business has with crowdfunding could very well come down to the platform you use. Here are a few common platforms that have gained traction over the years and have strong reputations among business owners.  

Kickstarter

Kickstarter is one of the most widely known crowdfunding sites. If you are looking for a large crowd, this is where you want to go. This website has successfully funded more than 187,000 projects with almost 18.5 million backers. While it may be harder to get noticed, you will have a larger audience to draw from.  

Indiegogo

Indiegogo is a popular site for inventors and business owners who create unique products. Your investors will follow you from the concept to the production process and become some of your first customers. Investors make donations based on which product ideas they most want to become realities and which development plans are the most viable. 

Crowdfunder

Crowdfunder is specifically meant for entrepreneurs looking to launch their businesses. It boasts 15,000 accredited investors and a community of 200,000 members. This is an important website if you want to secure a large amount of funding to grow your business on a national or international scale.  

Crowdcube

Crowdcube is a UK-based crowdfunding site where you can set different levels of financing that you need. For example, you can opt for seed money, ask early-stage financing to get your business off the ground, or vie for growth with large-scale loans. On this platform, your investors help you set realistic targets and expect you to stay accountable for the money they give. This process increases the security of the investments people make.  

If you need funding for your business and aren’t sure about your ability to secure a short term loan or take out a business credit card, consider crowdfunding. This capital could be the jumpstart you need to launch or grow your business.

About the author

Derek Miller
Derek Miller
Derek Miller is a writer specializing in entrepreneurship, small business, and digital marketing. His work has featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp. He’s currently the CMO of Smack Apparel, the content guru at Great.com, and a marketing consultant for small businesses.

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