A new phenomenon in business funding has risen to prominence over the last few years: crowdfunding.
Crowdfunding has helped to get many great business ideas off the ground that would have otherwise found it very difficult to raise the required capital. Banks will very rarely lend to small businesses since the economic collapse in 2008 unless they are already successful and need money for expansion – and even then, no matter how great your business plan might be, the odds are overwhelmingly stacked against you when it comes to sourcing business finance.
That’s why the disruptive influence of crowdfunding has had such an impact. Now businesses can bypass the banks altogether and look to the wider community of people who are interested in the products that they want to manufacture.
The best thing about it is that it provides a perfectly viable alternative to banks or even to seeking finance from investors or venture capitalists. Unlike when accepting investment, you won’t have to give up part of your business in return and the crowdfunders won’t actually own any of your business – they are simply trying to make it possible for you to produce a product that they really want to own.
Usually their donation to the crowdfunding project will also count as their payment for the product once it is made. In a way this is like pre-ordering but with more risk for the customer (although most companies will refund their backers if they are unable to complete the project).
Although there is risk for the backer, crowdfunding will make it much less riskier for your business to embark on a project if you are sure that there is an audience out there willing to support and back it out of their own pockets. In a way it acts like validation for your idea and might enable you access to even more finance once you successfully create something that is proof of concept.
Crowdfunding is also a great promotional tool because many media outlets are keen to report on interesting and exciting crowdfunding projects. You’ll also receive invaluable feedback from your backers that will help you improve the next iteration of the product. Early adopters are the people who will be evangelists for your brand and will promote the crowdfunding campaign the most because they want it to reach the goal so that it will actually be made.
Finally, another great thing about crowdfunding is that it is essentially free. Although you will need to pay a tiny percentage of the final fee to the crowdfunding platform, this is mainly just to cover their costs of hosting it.
Has your business crowdfunded anything yet? Let us know in the comments section.