Crowdfunding: The Pros and Cons for Your Business

When it comes to business funding, crowdfunding is becoming extremely popular for startups and even mature firms to raise funds. Sounds like a pretty easy process: sign up, list your needs, and watch the money roll in. However, the truth is, that it’s not that easy. In order to raise the funds you need, you must have a strategy that you must fully execute. In this article, we’ll explore two of the most common types of crowdfunding. 

Rewards-Based 

Indiegogo and Kickstarter are rewards based platforms because incentives are offered to those who donate their money to the project/company. This seems easy: post your need, offer a reward, and the money starts rolling in. In reality, it’s not that simple- there is much more to it. 

Set your goals 
Determine your rewards 
Post to platform 
Share on social media 
Take the money
Deliver the rewards 

Advantages and Disadvantages 

These are donations, so you’re not selling parts of your company. Plus, you can pre-fund your next project. 

On the other hand, once you’ve raised the money, you’ve got to provide the rewards that  you promised. Plus, there is lots of work involved and there’s no guarantee that you’ll reach your target. This means that you’re investing a lot of time and energy, only to potentially end up failing. 

Equity 

In this form of crowdfunding, people are actually providing you with working capital in exchange for a stake in your company. This is also known as angel investing. 

Advantages and Disadvantages 

This is the smart way to raise money for business. The investors on this platform are accomplished and can potentially add to the success of your company. You can potentially raise large amounts of money. This way is easier to communicate with investors, as many sites pool the money into one investment instead of you having to interact with multiple investors. 

On the other hand, you must be completely transparent regarding the financials of your business. Also, this is an expensive type of crowdfunding because you’re selling pieces of your company. 

Bottom Line 

Crowdfunding is becoming a viable way to help businesses raise the money they need. If you’d like to find out more about using this method for your business, contact JHF Capital to help you learn more.