Which Type of Small Business Crowdfunding Is Best for You?

Sneha Hull | February 18, 2022 | 86 views

Small Business Crowdfunding

“Fundraising is much easier now because of crowdfunding. Take advantage of that.”

– Constantin Bisanz, Founder of Aloha

If you have turned up to this blog, you are probably doing it for one major reason - that is to raise the capital you need and find the best source of business finance. Over the past decade, crowdfunding for businesses has gained popularity and has become one of the most convenient sources of business financing for small companies and entrepreneurs.

Crowdfunding is an excellent choice if you want to circumvent typical financing methods such as bank loans, venture capital, or angel investing. If you believe your idea has tremendous potential, crowdfunding is the ideal financing option. However, the real problem derives from lumping crowdfunding together under one roof, when there are numerous types of models. Choose the right model for your small business based on the type of project you’re working on. This is important for the success of the campaign.

As per Forbes, it is expected that, by 2025, the crowdfunding market will be worth $300 billion.

With the possibility of crowdfunding expansion, the moment has come to select the sort of crowdfunding that is most appropriate for your business. Read on to find out more about the right small business crowdfunding opportunity for you.

Best Types of Small Business Crowdfunding

Crowdfunding enables you to fund your business by soliciting contributions from individuals who want to be a part of what you're doing. Believe it or not, the internet is teeming with people willing to support fresh thoughts and products, as well as those interested in small company growth. The crowdfunding market is full of different types of options for your small business. You only need to decide on the form of crowdfunding you wish to use before you can begin raising and managing money.

Reward-based Crowdfunding

According to The Crowd Data Center, Kickstarter, one of the best sites for reward-based crowdfunding, completed 383,218 projects between January 2014 and April 2021.

Pros:
  • Cheapest ways to raise capital.
  • No collateral, credit check or previous business experience is needed
  • You retain all equity and control in your company

Cons:
  • If you fall short of your objective, you may be required to surrender any funds raised
  • Pitch your concept online and it will be visible to prospective donors and rivals

Some of the most popular reward-based crowdfunding platforms are like Kickstarter and Indiegogo. In this strategy, an entrepreneur launches a crowdfunding campaign to fund a product that is often only an idea. Instead of repaying the money, you reward your backers with rewards. However, the disadvantage is that you'll be under intense pressure to raise cash fast, and it might be discouraging to receive several $5 or $10 contributions when you're really looking for the big bucks.

Donation Crowdfunding

If your business is tax-exempt, you can raise funds through donation crowdfunding. As the name suggests, donation-based crowdfunding is a means of raising money through donations. Under this kind of crowdsourcing, you are not compelled to repay the cash or provide any rewards to the donors.

However, it has a few disadvantages; donors may not be inclined to support enterprises through this route because the primary objective is charitable. As a result, campaigns frequently fall short of their fundraising targets. Among the different types of crowdfunding available, this particular type of crowdfunding is the least frequently used to raise funds.

GoFundMe is a renowned donation-based crowdfunding tool. Other types of donation crowdfunding platforms are YouCaring.com, GiveForward, and FirstGiving.

Equity Crowdfunding

This type of crowdfunding involves the sale of tiny shares or equity in a firm to investors in exchange for a return if the business succeeds. It is a common type of crowdfunding for small businesses and early-stage ventures.

Pros:
  • Selling shares to a large number of investors may result in a higher cash flow
  • There are no loan repayments or credit checks associated with debt
  • Equity platforms may aggregate money and invest them in a single transaction, simplifying accounting and financial reporting

Cons:
  • Selling a portion of your firm may provide difficulties if investors desire a voice in your operations
  • You must adhere to state and federal security filing requirements

Equity crowdfunding platforms such as SeedInvest and Wefunder are excellent examples. Consider one of the equity crowdfunding instances.

One of the most illustrative instances comes from the realm of beer. BrewDog was founded in 2007 by two individuals and has grown to a $2 million corporation, with equity crowdfunding playing a significant role. As of 2020, the privately held company is 22% owned by a group of 120,000 investors who have invested approximately $95 million. This has allowed BrewDog to grow far beyond the reach of even the smallest craft brewery, and they are still investing in their green credentials through crowdfunding.

Lending Based Crowdfunding

Crowdfunding for lending is sometimes known as debt crowdfunding or peer-to-peer (P2P) lending.

Pros:
  • Interest is tax deductible
  • Budgeting and financial planning are simplified

Cons:
  • You must have a sufficient credit rating to qualify for financing
  • By agreeing to offer collateral to the lender, you may jeopardize certain firm assets

While Kiva is well-known for its emphasis on assisting entrepreneurs in emerging markets. Additionally, Kiva US focuses on entrepreneurs with no prior company history and offers interest-free loans, but has a long wait time to get the funds. This model works like a traditional business loan from a bank or other lender, with the borrower repaying the loan with interest over a set period of time. The larger the loan you wish to obtain, the more requirements you must fulfil.

Why Crowdfunding Is the Best Option for Small Businesses

Crowdfunding originated in the late 1990s as a notion for raising funds online to sponsor events, but the term was formally adopted in 2006 by FundaVlog creator Michael Sullivan. Crowdfunding is a great way to make your business more valuable while reducing risk.

Today, many people use crowdfunding to obtain personal loans. However, small firms use crowdfunding for a variety of reasons. Crowdfunding enables business owners to organize an equity or debt investment campaign, enabling the expansion of exceptional marketing skills and know-how, and it provides multiple funding sources. Additionally, it assists you in positioning yourself for a better offer.

The following is an example of a successful crowdsourcing campaign. Peak Design is the firm that executed a successful campaign with a target of raising $500,000 on Kickstarter for its Travel Tripod product. The campaign raised $12.1 million in 56 days with 27,168 backers.

Conclusion

As a small business owner, whether you're launching a new product, expanding operations, or simply wanting to connect with your audience, choose the best small business crowdfunding option for your needs.

FAQ:


Do you pay back crowdfunding?

Loan-based crowdfunding entails investors receiving their investment back, typically with interest. In addition, with investment-based crowdfunding, people give money in exchange for a stake in your business.

What are examples of crowdfunding platforms?

Kickstarter, Indiegogo, GoFundMe, Seedrs, Crowdfunder, and SyndicateRoom are among the most popular crowdfunding platforms.

How does crowdfunding operate and what is its purpose?

Crowdfunding is a method of financing a business initiative via the use of small amounts of funds raised from many individuals. Crowdfunders frequently use social media to promote their platform or ideas and encourage others to contribute.

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FASHION DESIGNER FUND WAS CREATED TO SOLVE THE FUNDAMENTAL ISSUES ASSOCIATED WITH FASHION DESIGNERS UNABLE TO SECURE CONTINUED FUNDING FOR NEW COLLECTION CREATION.

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CyberCatch and Arizona Small Business Association Announce Partnership to Help Small Businesses in Arizona Mitigate Cyber Risk

CyberCatch | September 22, 2022

CyberCatch, today, jointly announced with the Arizona Small Business Association (ASBA), a strategic partnership to enable Arizona's small businesses to quickly and easily implement necessary cyber security controls for digital success.According to the U.S. Small Business Administration, there are more than 590,000 small businesses (those with fewer than 500 employees) in Arizona, and these businesses employ nearly 43.5% of the state's private workforce. Small businesses are the growth engine of Arizona's economy, and this partnership provides a valuable tool for continued success,said Debbie Hann, Chief Operating Officer, ASBA. We are delighted to partner with CyberCatch to keep Arizona's small businesses one step ahead of cyber threats, so they can continue to grow and succeed digitally. Nearly all small businesses are digital these days, and need to stay proactive, said Hann.ASBA is pleased to take a leadership position with this program and announce a new ASBA membership benefit in the form of a subscription to CyberCatch, at a discount. CyberCatch's patented, innovative, cybersecurity Software-as-a-Service (SaaS) solution is specifically designed for small businesses and enables quick and easy implementation of all necessary controls for continuous cyber security. The SaaS solution automatically and continuously tests cyber security controls to detect security holes for prompt remediation so attackers cannot exploit and ensures ongoing compliance and cyber risk mitigation. "CyberCatch is a one-stop-shop for small businesses. We are honored to partner with ASBA. Our compliments to ASBA for their foresight and forward thinking to recognize cyber risk as a key threat to small businesses in Arizona and to partner with us to craft a valuable and timely solution for their members and prospective members to assure their continued success." Sai Huda, founder, chairman and CEO, CyberCatch. The root cause of data thefts and ransomware is security holes which derive from missing or ineffective cybersecurity controls that the small business is unaware of," said Huda. "Small businesses have limited resources and generally don't know what cyber security controls to implement or how to implement them in order to be secure from cyber threats, and now must comply with new requirements such as Zero Trust. ASBA and CyberCatch aim to fill those gaps in small business knowledge, with this innovative new partnership. This member benefit gives small businesses immediate savings and continual digital compliance and security. To learn more about this benefit, visit website. About Arizona Small Business Association The Arizona Small Business Association (ASBA) was founded in 1973 and serves as the collective voice of small businesses in Arizona by driving a better environment for all of us to do business. Today, ASBA is focused on delivering statewide education, mentoring, networking, and advocacy programs, providing innovative entrepreneurs with the resources necessary to grow and evolve in an ever-changing marketplace. For more information, visit website. About CyberCatch CyberCatch is a unique, patented cybersecurity Software-as-a-Service (SaaS) company that protects small and medium-sized businesses (SMBs) from cyberattacks by focusing on the root cause why SMBs fall victim: security holes. It provides an innovative cloud-based SaaS platform coupled with deep subject matter expertise to help SMBs implement just the right type and amount of cybersecurity controls. The platform then performs automated testing of controls from three dimensions: outside-in, inside-out and social engineering. It generates the Cyber Breach Score to continuously measure cyber risk and finds security holes and guides the SMB to fix them promptly, so attackers can't exploit any missing or broken controls to break in and steal data or infect ransomware. CyberCatch's continuous value proposition:

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