The internet made crowdfunding possible—a process where you ask strangers to fund your business. In return, you give them something, like a free sample of the product. Of course, some are hesitant to do this, but they do not realize that it can open many possibilities.
Apart from these possibilities, crowdfunding offers several advantages. While we are at it, why don’t we also talk about its disadvantages?
Advantages of Crowdfunding
- Easy to get funds – it is the fastest way to finance a project; you only pay fees if the fund meets your target cash. Most crowdfunding platforms charge 5% of the total funds, but only if you meet the target.
- Ready Platform – there are several platforms you can use to get funds. All you must do is register and then upload your project details, including images and prototypes. You do not have to build a website. Think of it as an online marketplace where investors and creators meet.
- Progress Tracking – since people funded your project, you have an obligation to finish it. This obligation is an excellent source of motivation to be on track. Without investors at your back, you may go through phases of giving up. Since there are people who are counting on you, you will force yourself to complete the project on time. The platform will also require you to do this.
- No Interest – crowdfunding is not a loan. You do not have to pay any kind of interest. If you borrow from banks, you must pay what you owe plus interests, even if your project failed. On some occasions, banks may even ask you for collateral.
Disadvantages of Crowdfunding
- Not Easy to Get Approved – not all projects in a crowdfunding platform are approved; there are many rules and conditions that you must meet before you can ask people for money. For example, you cannot just make a fake identity and ask for money. There is a verification process like that at an online casino that allows the platform to know you are a real person.
- No Guarantee of Funding – if your target funding is not met, the platform will return the pledges to the investors. For example, if your goal is $1 million, and you only raised $800,000, you will not get that money. You must do what you can to convince people to hit that $1 million mark.
- Being Copied – in a crowdfunding platform, you must upload your product details and ideas. As such, it is easy for people to steal that idea from you. Unfortunately, someone can beat you to it.
Possibilities of Crowdfunding
Here are some business possibilities that crowdfunding platforms can offer.
Crowdfunding platforms are excellent ways to market your products. It is an excellent tactic to find customers here and have them share product links once you are ready for launch. Those who supported your project from the start will want to own the product and will also be eager to share this achievement with other people. Since they bought your product, their friends are likely to do the same.
2. Alternative Financing
Too many businesses rely on banks and lending institutions. Some even bootstrap it by borrowing money from their families. This type of financing is a bad idea because you have a liability. If the business does not succeed, you still pay the bank what you owe. Worse, if you borrowed from family members, that money is gone, and it may just turn your relationship sour.
3. Customer Loyalty
With crowdfunding, your financial supporters become immediately your loyal customers. You are not obligated to give them a product sample. If your product is expensive, then they will definitely buy it from you. On top of that, the people who financed your project will also do the marketing. Even if your product is not the best, they have a reason to support it because they invested in it.
4. Feedback and Guidance
There are many investors in the crowdfunding world who will give you guidance and feedback. They can tell you whether or not your design is good enough or if your marketing efforts need improvement. Some are even engineers who would give you feedback on the design and usability of the product. The others will give you their opinions about the product’s usefulness or ease of use from a consumer perspective.
Crowdfunding is an excellent method to raise money for businesses, especially start-ups. In it, you let people from around the world fund your projects and then give them a reward. If you are short on budget to launch your business, try crowdfunding platforms. Make sure you read the terms and conditions and meet them. Apply on the platforms, and then do what you can to convince the members to invest.