Most businesses will rely on traditional funding for their growth and expansion, but because of the recent financial crunch and bad overall economy it has forced many groups to turn to alternative funding sources such as Crowdfunding in order to access the capital that they need to start or grow their business. While this fairly new way of gathering funding has grown in popularity very quickly, it is still important to understand that there will be some challenges when this method is used to source funding and capital.
What Exactly Is Crowdfunding?
Crowdfunding is a way to present your startup or business to an audience composed of investors and funding groups when you are seeking a business loan, donations, or start up capital within a determined timeframe. This is done through a Crowdfunding portal that is also tied together with social media, allowing the word to spread quickly and reach a wide range of potential investors or donors, depending on the type of crowdfunding being used (reward, equity or debt). The investors pledge certain amounts of money toward the project and the issuer seeking the money can offer incentives such as gifts to investors that give a determined amount of funding or (when the SEC finalizes regulations) equity shares in the company. SterlingFunder is an example of an equity crowdfunding platform.
There is always a target funding goal set, and if that amount isn’t raised before the deadline the money is returned to the investors. The majority of popular Crowdfunding websites have very advanced interfaces that allow the parties to manage their project and campaign. It is best to provide as much detailed information as possible when designing a presentation to pitch for the funds needed. Since Crowdfunding has become so popular and proven to be a very good platform to raise capital, many more companies are using it and more investors are looking at this option. So, the competition is naturally tight right now with more opportunities than funding, so it is important to really stand out and catch the eyes of potential investors.
While seeking out multiple sources of funding to reach one goal isn’t anything new (in fact, many companies have done this dating back several decades), doing so via the Internet and social media is a pretty new concept and it has made many people very aware of this option. Businesses love the idea, and it gives them another way of getting the capital required if a traditional lending source denies them. The economy is not doing well at the present moment and it is likely to take time to fully recover to a healthy level.
When the economy is struggling like this it means that consumers are not spending and when that happens it means that businesses go out of business. It is the evolution and cycle of business, and when banks get timid and do not lend, Crowdfunding gives many people the opportunity to source the needed funds in order to keep their operation moving forward, or the money needed to launch a new idea or concept that would never see the market if it wasn’t for Crowdfunding!
Now, Crowdfunding doesn’t mean “free money” as it requires a lot of work and not all opportunities reach their goal and many might consider this wasted time. Of course, there is no way to have a chance at the funding desired without putting in some serious work. When there are no other options and it is sink or swim, Crowdfunding gives those great ideas a real chance to see daylight. Many people have to pull the plug on their dream or concept because they cannot continue to support it financially and this is a great way to fund that dream. Those who never give up and exhaust every possible avenue are the ones that end up succeeding.
This is a great venue for companies to get exposure as well as funding. The top Crowdfunding portals get great web traffic, literally thousands of visitors every minute that are looking for interesting projects to pledge their money towards. Even with a great idea it will require a nice enticing giveaway in order to attract those pledges. With so many options and people seeking funds, it is important to stand out from the crowd! Get creative and think outside of the box in order to draw the attention and then seal the deal with a well-developed business plan!