Is crowdfunding a viable idea for your business?
During the early days of crowdfunding, most people seemed to dismiss it as a passing fad or a short-lived business trend. But as crowdfunding systems like Kickstarter continued to show impressive signs of success, more and more entrepreneurs and even those outside the business sphere (e.g. independent bands and artists who needed a simple way to raise funds for their creative pursuits) have jumped into the crowdfunding bandwagon.
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Read more about real estate crowdfunding at http://crowdfund.co/real-estate/
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Crowd funding is just one way of financing your business, not all crowd funding is the same, and it may not be right for everybody. Like every type of funding you have to find the one that works best for you, and always read the small print.
The great thing about crowd funders is that they are more likely to get an idea or project that is seen as unconventional or quirky. The type of ideas that the more traditional type of lender struggles to understand.
It all depends what you want to achieve with your company in the long run. I believe that crowdfunding is a smart and easier/faster alternative than business angels, But business angels is a good foundation to attract future VC fast and "easy". I sold my VC funded company after 5 years and I spend approximately 20% of those 5 years raising VC. Could or would I have attracted VC faster if I had crowdfunded my company first - I do not know. Whatever it is crowdfunding, business angels or VC it takes a lot of work to succeed in getting funded.
56 percent of Kickstarter projects fail to reach their funding goal (http://www.forbes.com/sites/suwcharmananderson/2012/07/17/secrets-of-success-hidden-in-kickstarters-numbers/).
Maybe too few companies takes advantages of the valuable feedback they can receive through a "normal" crowdsourcing campaign, before running a equity crowdfunding campaign.
Networking skills are important for this. Not only your business idea should be able to convince them, its the trust that matters. I had, rather still have, invested some $100 long time back. The company is still private, however, I dont get any news, updates on whats going on in that company. Typically if there is major shareholding by handful of people, the company is likely to be untrustworthy. So, long story short, if you are able to convince people and on top of it, commit that they would get handsome amount of dividend on their investment, i think its still the old and famous best idea.
The purpose of funding is precise and transparent for both, creators and contributors. Mission should be simple –'to help getting funds to the people having innovative ideas to transform them into reality' and on the other hand, to ensure the contributors that their funds are in right hand. Both givers and seekers should be assured that the money has been spent to serve the community better through a project.
You retain complete ownership of the entire business and project.
You control the decision-making processes
You can gauge public interest before spending money on new services or products.
You can begin receiving pledges as soon as you make a plan and create a compelling pitch.
After you build an audience you can propose future projects to them.
Backers can give valuable feedback, not only funds, about your project.
Before people used to call Crowd-funding "FFF funding". However, there are three types of crowd-funding:
All these could be good ways of funding your business as long as they fit your bootstrap or growth plan.
Unfortunately, there's still a strong barrier to entry for crowd-investing for young early stage (idea-stage) startups. For me, existing crowd-investing platforms are sort of mini-IPOs. This means that seed investing no longer goes through accredited investors clubs, but it is more open to the main public giving them the choice of choosing the ventures where they want to put their money (differently than just joining a private equity investment fund where the decision is made by the fund manager).
The other option is crowd-donation or crowd-pre-product-purchasing (as in Kickstarter). This is more a marketing tool than a funding tool. The bulk of work must be already done in order to get the right credibility for your project (unless you are funding a small boutique or your kids' rock band concert). I am excluding here non-profit crowd-funding. This is another story.
My advice is to startup is to create your own crowd-funding page and spread it to your network and enhance the FFF funding stage. When you attract interest to your startup project, you can always negotiate the funding details off the record. This way you will overcome the equity-base crowd-investing barriers for very early-stage startups.
Is crowdfuning a viable way to do what for your business? To get donations from committed followers for an appealing project? Maybe, if you can raise enough.
To raise capital for the growth of your business? It's not meant for that. The amounts are too small. Not s*xy enough.
For growth capital, as always, you need a bank loan, or perhaps an investment from someone who is convinced they can get a good return for their money.
This is a great question, Knut. I think there are all sorts of new ways we will see finances managed in the years to come. Just look at what has happened these past few years with things like PayPal, sending money to friends via text, bitcoin (even with this latest start-up issues), etc. Tomorrow's entrepreneurs (today's actually) had better be able to learn to be creative in the way they raise capital as well as operating funds.