Seven Ways Crowdfunding Helps Startups

Crowdfunding is an alternative method of raising capital for a project or campaign and is fulfilled through the monetary contributions of many people, either from family or friends, as well as investors customers. Unlike multinational companies that raise funds through stocks, smaller businesses and entrepreneurs will be able to finance their business ventures from this collective effort over the Internet.

Crowdfunding for startups and entrepreneurs

As an entrepreneur, one of the most important things that you need to consider is capital or funding. Sure, you may have a great business idea or concept, but without proper and sufficient funding, all your efforts may go to waste. Crowdfunding helps you source the necessary funds to carry out the plans for your startup company. Two of the most funded crowdfunding campaigns namely, The DAO (Decentralized Autonomous Organization) and Star Citizen, raised more than $100 million dollars each. The success of these two campaigns shows the power of crowdfunding as a means to raise funds for startups and business ventures.

In order to properly understand crowdfunding and how it benefits startups and entrepreneurs, you should know the three aspects involved in crowdfunding: the individual or group seeking the funds, the people who invest either for recognition or business shares, and the platform for crowdfunding. Crowdfunding business startups online may have seen increased attention and popularity in the mid-2000s, but the concept has been used for centuries ago by authors and book publishers. Raising funds through crowdfunding has financed many good business ideas over the years.

Crowdfunding can help startups in many ways. Here are the seven ways this method can transform a great business concept into reality.

Provides Access To Funds

The first and most obvious way crowdfunding helps startups is by giving them the capital to start a business venture. Capital is not easy to raise, especially for new entrepreneurs. Banks and creditors have strict requirements before approving a business loan but crowdfunding eliminates such requirements and difficulties.

Promotes The Business Startup

A crowdfunding platform can also be used to promote a business venture. It is great to introduce the mission and vision of a business startup to the market and potential investors, at virtually no cost. Most platforms used for crowdfunding incorporate social media strategies and mechanisms, making it easier to draw attention to your company or project. Crowdfunding can draw the interest and attention of potential customers and investors. Using this method can help bring the story of your startup to the right audience thus creating more attention and good publicity.

Reduces Risk

Starting a company can be very challenging and very risky. Aside from gaining access to business funds, crowdfunding also reduces risks identified with a new business venture such as gaining market validation and giving up equity. There is also no fee to use a crowdfunding platform, except when the campaign has reached its 100% funding goal, about 5% may be the average commission.

Provides Concept Proof

Crowdfunding makes it possible to demonstrate the proof of concept to investors and to everybody else. Providing sufficient market validation for a business venture can be quite difficult for a startup company. Having a successful crowdfunding project is a great way to achieve credibility and gain respect from investors.

Pre-selling Opportunity

Starting a business has many risks and many startups fail when they do not gauge the market beforehand. A new concept can be introduced to the market through crowdfunding thus giving the entrepreneur a chance to revise the plan or pursue the existing business idea.

Generate Ideas

An entrepreneur may have a great business idea or concept, but this does not mean that these are perfect or flawless. Crowdfunding helps in providing feedback and recommendations from the audience and investors. Many interested investors will likely be individuals with experience and expertise in that area of business. Attracting and drawing such experts will help produce and generate ideas, allowing one to review and revise the business plans to make them better and more feasible.

Creates Loyal Customers

An entrepreneur who utilizes a crowdfunding campaign will not only get access to financial support but will also gain loyal customers. Drawing like-minded individuals to your business concept helps create loyal customers and investors. Early adopters are those who decide to contribute to the entrepreneur’s campaign and help spread the word without expecting anything in exchange. These early adopters have the potential to become loyal customers of the business. Crowdfunding is a great method that an entrepreneur can use to receive adequate financing as well as exposure needed to make the venture a reality. This modern method has raised billions of dollars and continues to give hope to entrepreneurs with great ideas and passion for success.