Crowdfunding is a somewhat new technology that allows you to fund your business idea without going through financial institutions. Instead, you present your idea or product to the public on a funding platform and other individuals donate or invest in it. This financing opportunity has both advantages and disadvantages, however.
One of the most important advantages of crowdfunding is that you don’t take any risks. You aren’t getting a loan that has to be paid back, and you don’t have to repay the funds you receive. In addition, many individuals and companies learn about your products and services during your funding campaign. This opens the door to communication with individuals and investors you may have never met if you did not go through this funding process.
In addition, alternative funding allows you to keep your company. You don’t have to share equity to gain investments when you use these platforms. You can also gain valuable feedback about your idea or product through your campaign. You can take the most worthwhile and intuitive feedback and apply it directly to your product immediately. It’s like free market testing.
Although the contributions tend to be small, you can provide rewards, such as acknowledgment on your website, memorabilia, or early access to new products, for those who do invest.
Unfortunately, many funding campaigns are unsuccessful or don’t reach their goals. However, thorough planning and proper timing can improve your success rate. In this same vein, these strategies often take a significant amount of time to prepare because you need to create multiple content types, rewards, and contribution tiers. You also need to be available to answer any questions throughout your campaign.
These funding platforms are inundated with new ideas. Everyone is looking for easy financing. This trend can make it difficult to get noticed. However, if you can effectively drive traffic to your campaign, you can improve your exposure.
These platforms also have high fees, typically up to 5% of the money you raise. You also have to abide by strict rules on information and rewards. In addition, your upfront costs can be high because you have to complete the marketing preparation before you post your campaign. You also have a short period (30-60 days) to achieve your funding goal.
Because you put your product out in the public for all to see, other businesses and individuals can copy or improve on it before they begin selling it as well. Therefore, make sure your intellectual property is protected before submitting your funding request.
Crowdfunding can be a unique, beneficial tool for gaining financing for your company or product. However, be sure to protect yourself and be well-prepared before submitting your project.