Tue 13 Mar 2012
Individuals with grand plans and dreams to start their own business often find that financing their startup is the biggest hurdle they have to cross. For many, obtaining funds to make their entrepreneurial dream come true is not easy. When the traditional methods of financing through banks and other institutions fail, a number of individuals look at unconventional sources for funds. One such alternative you should consider is crowdfunding.
Crowdfunding, also referred to as crowd financing and crowd sourced capital, is an innovative fundraising concept that is highly popular these days. It is used for financially backing would-be entrepreneurs, artists, authors, etc. In this model, online crowdfunding sites act as intermediaries between you and hundreds of individuals from around the world, who can contribute as little as $10, or even less, to support your enterprise.
Here are a few reasons why crowdfunding can be a good option for you.
Crowdfunding helps you raise capital
When the bank and other potential sources have rejected your loan application, then friends and family can come to your rescue. But when that is not possible, funding your startup may seem next to impossible. In such a case, especially when you have a great business plan or a social cause that you strongly believe in, crowdfunding is an option you should definitely consider.
While crowdfunding does not necessarily lead you to a potential investor, it helps you reach out to a number of people willing to make small contributions to help you get started. The bottom line is that you get the funds you require.
Crowdfunding is better than taking a loan
Crowdfunding involves in obtaining smaller contributions from a big number of people. So even through crowdfunding, you can raise the amount that you originally wanted from the bank. Even with minimum contributions as low as $10 or even a few cents, crowdfunding sites can help you pool thousands of dollars.
The fund you raise through a crowdfunding site can be a loan or simply a donation, in which case you won't have to return it. This means, there may be no obligation to return the money. However, as a token of their gratitude, entrepreneurs and artists who have benefited from this option often give a share of their returns, or offer incentives or discounts to the contributors.
Crowdfunding is convenient
Another factor that makes crowdfunding better than a bank loan is that it is an online process and does not usually need you to visit several offices. Another major advantage is that it does not require you to have a clean credit history. Just put in the effort to develop a really good business plan that appeals to the audience you are addressing, and you can raise the capital you need. Also, you can ask your friends and family on social networking sites to spread the word, so that you can get the required funds for the project before the deadline.
Along with finances, crowdfunding may also help you get the initial clients or supporters through word-of-mouth advertising.
When you campaign to obtain funds for your business, or a social enterprise, you may also be catching the attention of potential supporters or customers in the process. This is because crowdfunding involves in dealing with a number of people, who would be contributing only when they believe in your plan or support the cause. And if they do, they are sure to spread the word among like-minded people. For example, if you want to startup a waste-recycling center, and do not have the funds for it, crowdfunding can help you get the finances as well as the backing of an increasing number of environmental conscious people out there.
Crowdfunding is great for solid business plans
Crowdfunding is a great option, but it does not work out for all. Only when your story is compelling enough to encourage people to donate, this fundraising method would be successful. So if you think that you have a solid business plan that is sure to work, but don't have the credit rating that the banks require, crowdfunding is the way to go. Another advantage here is that several crowdfunding sites have experts on their panels to evaluate your business plans. This means, should there be any flaws in it, you will come to know of it through those evaluations.
Increasing number of crowdfunding sites
There are a good number of crowdfunding sites today, which can help you with the finance that your startup requires. While some sites focus on microfinance for a particular class of startups, some help individuals from a variety of industries. Most of the crowdfunding sites need you to obtain the funds within a stipulated time. However, some sites may give you the funds even if the goal has not been achieved, whereas some may return the funds to the contributors.
The site you choose also determines whether the funds you obtain would be treated as either a loan or a donation. Some of the well-known crowdfunding sites today include IndieGoGo.com, Peerbackers, Kickstarter.com, FirstGiving and RocketHub.com.