“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
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.
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.
Cheapest ways to raise capital.
No collateral, credit check or previous business experience is needed
You retain all equity and control in your company
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.
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.
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.
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
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.
Interest is tax deductible
Budgeting and financial planning are simplified
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.
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.
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.