Imagine being in a crowded cafe. You’re sitting next to a businessman in a fancy suit and across from a lovely family indulging in dessert. In fact, as you look around, you see that everyone is here: the young, the old, the humble and the clearly rich.
In one swift motion, you jump on your tabletop and scream, “LOOK!” Then you pull your business idea out of your pocket and hold it over your head like it’s baby Simba. (Hello, Lion King?) There’s a standing ovation and people all over the café throw money at your feet.
Sound ridiculous? It’s not.
Crowdfunding actually works like this! With one online campaign you could raise the same amount of money (or more) as a bank issued loan. And, the terms are often much better.
Before we get into the benefits, let’s recap the different types of crowdfunding options available to you.
- Donation Crowdfunding: This funding works for projects with moral, ethical or charitable value. Usually linked to social media platforms, it offers no return on money donated.
- Reward Based Crowdfunding: Considered the most popular type of funding, donors receive a pre-determined and tangible item or service in exchange for their contributions and get no equity or ownership in the business.
- Lending Based Crowdfunding: Like an old-fashioned loan, investors give money on the condition that it will be paid back (with interest) in a predetermined amount of time.
- Equity Crowdfunding: An increasingly popular option, this model invites a large number of “regular people” (like those in our fictitious café) to invest small amounts of money in exchange for dividends based on profits. Owners are in control of all financial conditions, making it the ultimate crowdfunding for business.
Go Shout Your Idea
Even if there’s not a single person who wants to invest in your company, you’re no worse off than you are right now. Sure, you might have a small bruise on your ego, but you’re an entrepreneur – you can handle that!
Get A Standing Ovation
Here are some other reasons why you should look into crowdfunding as a source of income for your new business:
Money. Besides having nothing to lose, the upside to crowdfunding should be obvious: It’s money! And, you wouldn’t be reading this unless you needed more of it. Regardless of which model you choose, the end result could be the financial backing you need to reach your goals.
And, unlike big banks that are often too scared to invest in startups – wonderful strangers on the Internet are swayed by great ideas. Pitch your passion to them and you could have all the money you need get going and stay going.
Transparency. Sure, investing is risky. But, the donors on crowdfunding platforms know what they’re getting into. They realize that not all good ideas will amount to overwhelming success – and they’re okay with that! While it’s always nice to have a lawyer you can consult for business decisions, crowdfunding is a stress-free way to find potential investors. You don’t have to embark on a mountain of legal “what-ifs” beforehand because the arrangements are crystal clear from the beginning.
Validation. Your friends and family may think your idea is great, but how will it be perceived in the real world? By putting yourself in the crowdfunding marketplace, you get first-hand feedback about your idea or product. Equity crowdfunding is especially helpful for businesses and startups in the early stages of the game. Good feedback will validate your plan, and not-so-good results can help you tweak your model and come back stronger.
Expansion. Wherever you’re located, crowdfunding is there – but not just there, too. Sometimes, the investors you hook have their own arsenal of contacts and you could gain access to their bankers, testers, mentors and customers, too. For entrepreneurs early to the game, that’s invaluable expansion.
With traditional banks, you’re asking banks to say ‘yes or no’ to giving you money that’s central to one fund and one place. That’s like fishing in an ocean that only has one big fish! But with crowdfunding, you increase your odds of getting investors because you put yourself in front of individuals who have already said ‘yes’ to investing. And you’re not just going after UK fish – with equity crowdfunding – you have the potential to reel in big investors in international waters. (You just have to get them to nibble on your idea.)
Acceleration. Offline, it can take months or even years to raise the funds you need to get started. You must pitch your ideas to one bank after another and you’ll likely spend time and money on sales flyers, brochures and other materials, too. Their decision isn’t immediate, either. You must follow up again and again. The process can be exhausting and disheartening. There’s a better way.
With crowdfunding, you only pitch once and the interested investors come to you. In fact, the process is so accelerated that sometimes crowdfunding for business can take less than 30 days to fund! This will allow you to focus your energy back on your business and not constantly on how to finance it.
Now, that’s something to shout about. For even more information on crowdfunding, check out this video:
What do you have to lose?