Firstly, you want to know the pros and cons of crowdfunding your business. Well, the good thing is that there is a lot of information regarding this form of financing. The bad thing is that while it may sound easy at first, it can get tough when you have to juggle with such a high sum of money and the documents that come with it.
In any case, with this article, we will try to present the pros and cons of crowdfunding and how it can help turn your dream business into reality. Let’s get started:
What Is Crowdfunding?
Crowdfunding is a form of external financing done by other people for you. It is popular among people of ages between 20 and 40. The entire process of crowdfunding happens online, and your supporters will be sending their contributions via online platforms.
For example, if you have an idea on how to create a cheap yet high-tech smartphone, you can get funded. Just create a prototype and make a presentation for it, so it won’t look like you are asking for money for something you don’t have.
But a prototype is not always a must. It depends on your project. Some pictures and an attractive and clear presentation of your idea and how exactly you intend to use the money will do most of the job.
Types of Crowdfunding
Before we talk about the pros and cons of crowdfunding, you might want to look at what kind of crowdfunding you want. For example, you can use a donation-based crowdfunding. So, in exchange for money you give non-monetary rewards such as T-shirts, CDs or the finished product.
- Debt-based crowdfunding where you ask a crowd to fund your business, and after a period, you return the money.
- Equity-based crowdfunding where you exchange money for equity.
Indiegogo and Kickstarter are the most popular crowdfunding platforms on the Internet.
By using a crowdfunding platform, your product/project/business will easily get popular on the Internet. If your product is attractive to many people, you can get a high amount of “investors”, which can result in fast funding. It all depends on your project, how much you ask and what you give in return. A major advantage is that crowdfunding helps you save time and you won’t have to run from one bank to another looking for offers and approvals.
Moreover, while these online platforms connect your idea to people who are willing to finance it, your business will get promoted even before it begins to produce anything. So, there are high chances for your supporters also to be your first clients. Who doesn’t like free publicity?
There are also examples of bad projects that got the funds. There are also examples of projects that are so popular that people over fund them. Thus, a million dollar fund limit can quickly get to three million dollars! It all has to do with the quality you offer and the innovation you bring to the market.
You should keep in mind that not every project gets funded or reaches its goal. In such a case, the platform will return the money to the “investors,” and your project will be deleted.
Not delivering what you promised can give you a bad reputation. Not having the resources to pay back the funders can also be unhealthy for your business. Giving unattractive rewards can also diminish the chances of getting funded, either for the project you are currently working on or for the next if you have such intentions.
So, these are the main pros and cons of crowdfunding. Have you used this type of funding in the past or do you intend to use it? Please let us know your thoughts on the subject. If you are new to this method, or even if you have tried it before but you still need more information or advice, you may call us for a free consultation. We may be able to tell you what crowdfunding option to go for and where to find a reliable platform.