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.
Real estate crowdfunding is not new. If any new real estate company needs funds to for its expansion, the best way is crowdfunding. In this concept real estate parties use different platforms to raise money for their project. Investors are secured as they usually invest less proportion of amount. Even though project fails they will not suffer much.
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.
In my opinion crowdfunding has become a real growing trend. Unlike union banking you are able to see and connect with a company, but if the investment fails or falls, you know you didn`t loose an arm and a leg... ( unless you were a big investor ) People send out $30 or more each month to charities not really knowing a thing about how the money was spent. With crowfunding, as a community, you do have atleast a voice... and a choice rather to add more funds, or to interject an opinion amongst a community. I personnally have no experience in crowdfunding but from what I have heard it is working great for many projects so far. People loose hundreds of thousands in the stockmarket daily, thousands loose money at the black tables, crap table, and slot. People buy lottory tickets like they are going out of style. And we could continue to give examples of how money is just a gambler`s delight. Again, atleast with crowdfunding you have a voice and an opportunity to be part of potentially the next big thing, or trend, and say I helped fund that...
That`s my two cents from someone who has never worked that program. I am a member of the 70`s and 80`s AmWay family, dabbled in NuSkin, Herbal Life, and I am still an associate member of Pre-Paid Legal Services from the late 80`s early 90`s.
As far as my own desired profession I began as a computer programmer in 1974 with just a 4k Timex/Sinclair attached to my RCA black and white TV and a Panasonic cassette Record / Player and the elders of the world were saying that it was just a fad - Look at Bill Gates, Larry Page, Steve Jobs, and others at now as well as Donald Trump and Warren Buffet...
Okay, I owe some two cents :-)
I think it depends on the project and the phase of the project that you are in. If you are looking to get people involved and for the public to know then it is definitely a viable option. If you are in stealth mode and are just starting out it's probably not a viable option for you yet.
Crowdfunding programs like Kickstarter are a great way to get your customer advocates to purchase additional engagement in your product range, but when it comes to sourcing investment for capex and/or working capital where an investor wants a return and a say in how the business is run, then it runs out of steam.
One of my past clients, Keen Nutrition, have successfully used Kickstarter to crowd source funding to fund their entries in the 2014 Great Taste Awards in Gateshead this year, so it does work
Crowd funding can also refer to the funding of a company by selling small amounts of equity to many investors. This form of crowd funding has recently received attention from policymakers in the United States with direct mention in the JOBS Act; legislation that allows for a wider pool of small investors with fewer restrictions. The JOBS Act was signed into law by President Obama on April 5, 2012. The U.S. Securities and Exchange Commission has been given approximately 270...
I am always advising my clients to be cautious of both federal and local regulations when attempting any type of "Fund Raising". Knowing the legality always ensures any business, whether for profit or non-profit (which is what I primarily deal with), that the IRS will not be knocking on their door later. However, with the idea of "Crowdfunding" it appears that there is a possibility that if all goes south, the IRS would be the least of a businesses worries.
Donors for non-profit do not normally take stock in an organization, however crowdfunding seems as though it houses many stockholders and although I belive it is an excellent way to "Fund Your Dream", it may also be a way to lose valuable friends. I would be careful and remain 10 steps ahead of the game...So To speak.
Any funding sources for the event management business are useful, and with the expolosion of new technologies, potentially viable as well.
Yes, I am about to start a $5,000 campaign to send books to orphans in Africa. I strongly support the efforts of crowdfunding!
Crowd funding is an efficient fund-raising instrument due to the diversification of finance sources which means lower risk for each particular investor and affordable funds for the promoters (or other potential beneficiaries). One of these investing platforms, Homestrings.com, represents a good example. The targeted investor audience is individuals from various nations spread all over the world, and promoters offer them opportunities to make an impact at home countries. It may work as a promising alternative for developing countries to attract FDI flow to their economies.
Crowdfunding without idea, promotion, work and patience is just another entrepreneurial possibility that is not use to its full potential. With all mixed together then brings in a much better financing possibility than loans in banks or venture capitalist taking part of your company.
Crowd funding will only increase in use. The current uses, i.e., for personal needs or charities will probably always be a portion of its allure. But the big money will be in its allowing un - accredited investors to be solicited. Especially when discussing the potential to offer "equity" in ventures or purchase real estate.
As with any investment, those with a viable idea, product or service will be successful in their efforts. Those without, will not find crowd funding to be a magic panacea.
I've used Kickstarter and Crowdtilt. It's not easy, you have to promote the heck out of your campaign preferably years in advance to have a fanbase. I've noticed if your product is logical or artistic, you probably won't get funding. If it's impossible vaporware that looks SO COOL to kids, you'll go "occulus." Good luck!!
BTW use EZvid to make your own project video. It's free, and really helps. Google it.