Hate it or love it, crowdfunding has become part of the modern business landscape. According to the Small Business Association, “crowdfunding is a collective cooperation of people who network and pool their money and resources together, usually via the Internet, to support efforts initiated by other organizations.” And anyone who is on social media has seen this platform in use, both for business ventures and personal gain.
One of the key benefits of crowdfunding is that the internet provides the small business a vehicle to reach a large number of potential investors with very little personal expense, also giving them the ability to distribute targeted marketing collateral to a large audience quickly and economically. The additional benefit of crowdfunding is that by sending out the request or business idea to a large number of people, the small business will likely receive feedback from a larger pool. This feedback can then be used to refine and tailor the presentation.
Types Of Crowdfunding
Crowdfunding typically falls into one of three categories: Donations, rewards-based, and equity-based. A small business will typically solicit crowdfunding as either rewards or equity-based investments. A rewards investment will grant the investor the company’s product or service as a “reward” for their contribution. An equity investment will grant the investor part ownership of the company in exchange for their investment. Donation is exactly what it sounds like, a gift that doesn’t gain any benefits outside of potential tax deduction and personal reward.
Small business owners and entrepreneurs have a number of crowdfunding platforms that they can use to launch their capital requests. GoFundMe, Indiegogo and Kickstarter are three investment platforms that provide a portal to potential investors.
Why It Works
Crowdfunding can be an effective tool to raise capital if properly executed. The requirements for writing a compelling business case are not waived by the investors you have. Instead, they should give you more reason to dig in and plan ahead. With crowdfunding you have the ability to reach far more people than the traditional forms of raising capital. However, the potential investors want to understand why investing in your small business is good for them, putting the burden on you for creating and executing a good campaign.
Crowdfunding can be a good move for many small businesses. To be successful using this platform, the small business owner must prepare a business plan, a presentation, and a video as if he or she were going to a bank to secure a loan. There is also a benefit in being extremely active on social media in order to leverage a network of contacts to reach a broader audience.
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