aka Crowdfunding For Dummies
Unless you were kicked in the head and have never heard of crowdfunding platform icon Kickstarter.com or the now dozens of other online platforms that startups and entrepreneurs use to raise money for an assortment of profit and non-profit fund raising initiatives, below is good primer. Before you do a deep dive into the summary below courtesy of the experts at Fundable.com, you should appreciate there is a material difference between traditional crowdfunding and equity crowdfunding.
Traditional crowdfunding is the process by which those seeking working capital for a project or initiative do so in consideration for donations, and those who donate are promised a sample of the to-be developed product for free, or some other type of non-monetary ‘quid pro quo.’
Equity crowdfunding infers that the enterprise seeking to raise money is doing so in consideration for offering private equity shares in their business. The thesis for investing in these private companies is straight-forward: Your private shares might increase in value as the enterprise grows, and the goal of investors in these private companies is to experience a monetization event where the company receives additional private investment at a higher valuation and such transaction allows early-stage investors to cash out, or if/when the start-up is acquired by a larger enterprise. In some cases, investment in private companies do not yield those private investors a return until such time as the company initiates an Initial Public Offering aka IPO and offers a percentage of the company shares through a public stock offering, after which the initial investor can easily sell their shares on the stock exchange.
A leading source of the top crowdfunding sites is via global search directory RaiseMoney.com
Crowdfunding For Dummies
According to the experts at Fundable.com, crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals—primarily online via social media and crowdfunding platforms—and leverages their networks for greater reach and exposure.
How is Crowdfunding Different?
Crowdfunding is essentially the opposite of the mainstream approach to business finance. Traditionally, if you want to raise capital to start a business or launch a new product, you would need to pack up your business plan, market research, and prototypes, and then shop your idea around to a limited pool or wealthy individuals or institutions. These funding sources included banks, angel investors, and venture capital firms, really limiting your options to a few key players. You can think of this fundraising approach as a funnel, with you and your pitch at the wide end and your audience of investors at the closed end. Fail to point that funnel at the right investor or firm at the right time, and that’s your time and money lost.
Crowdfunding platforms, on the other hand, turns that funnel on-end. By giving you, the entrepreneur, a single platform to build, showcase, and share your pitch resources, this approach dramatically streamlines the traditional model. Traditionally, you’d spend months sifting through your personal network, vetting potential investors, and spending your own time and money to get in front of them. With crowdfunding, it’s much easier for you to get your opportunity in front of more interested parties and give them more ways to help grow your business, from investing thousands in exchange for equity to contributing $20 in exchange for a first-run product or other reward.
The Benefits of Crowdfunding
From tapping into a wider investor pool to enjoying more flexible fundraising options, there are a number of benefits to crowdfunding over traditional methods. Here are just a few of the many possible advantages, which we’ll cover in greater detail later in this guide:
- Reach – By using a crowdfunding platform like Fundable, you have access to thousands of accredited investors who can see, interact with, and share your fundraising campaign.
- Presentation – By creating a crowdfunding campaign, you go through the invaluable process of looking at your business from the top level—its history, traction, offerings, addressable market, value proposition, and more—and boiling it down into a polished, easily digestible package.
- PR & Marketing – From launch to close, you can share and promote your campaign through social media, email newsletters, and other online marketing tactics. You can do this yourself, or you can enlist experts who specialize in burnishing your brand. As you and other media outlets cover the progress of your fundraise, you can double down by steering traffic to your website and other company resources.
- Validation of Concept – Presenting your concept or business to the masses affords an excellent opportunity to validate and refine your offering. As potential investors begin to express interest and ask questions, you’ll quickly see if there’s something missing that would make them more likely to buy in.
- Efficiency – One of the best things about online crowdfunding is its ability to centralize and streamline your fundraising efforts. By building a single, comprehensive profile to which you can funnel all your prospects and potential investors, you eliminate the need to pursue each of them individually. So instead of duplicating efforts by printing documents, compiling binders, and manually updating each one when there’s an update, you can present everything online in a much more accessible format, leaving you with more time to run your business instead of fundraising.