If you’re interested in crowdfunding for your business, there are a few things you should know.
How Crowdfunding Works for Business
Crowdfunding is the practice of pooling small investments from a large group of people to fund an activity. It can replace a bank, friends or a private investment company to start a company, fund the development of a new product or create a new service.
There are many online crowdfunding platforms, including Kickstarter, IndieGoGo and GoFundMe. Each requires that you set up a profile, establish a funding goal and publish your financing request. People can then doante to your cause or your business.
Investors and contributors may expect some form of reward for helping out companies through crowdfunding. For those donating to a non-profit organization, the reward might be as simple as a handwritten thank-you note or a tax deduction (if applicable). Others might gain early access to a discounted product. Some might invest with the expectation that their share values will increase over time (known as equity-based crowdfunding). Others might purchase debt-based shares with a fixed interest rate (crowdlending).
What to consider before crowdfunding
Whether you’re considering an investment or trying to raise funds for a new product, ask yourself the following questions:
Are you comfortable broadcasting your plans?
Be aware that competitors will have access to your ideas and business profile. On the the initial developers of the digital watch - Pebble - used crowdfunding to fund their product only to see their business idea overtaken by others (including Apple).
Are you prepared to create an appealing campaign?
Review crowdfunding sites and see what appears to be working. Be prepared to create an appealing campaign that will stand out on the crowdfunder’s site.
Will this platform reach my target investors or users?
Different crowdfunding platforms focus on specific funding pools. FInd out which ones would be the best for your business.
What’s the fee structure?
Understand the models and costs associated with the platform’s fundraising practices.
How much money do you plan on raising?
Most crowdfunding requests are small. That makes the individual risk for any one donation or investment small as well.
How much time will be allotted to my funding goal?
Companies levy fees to process investments or pledges. You may be hit with increased charges if targets aren’t met.
Corwdfunding is worth considering as an alternative to traditional financing, but before you sign up, study the details.