It’s 2022. By now, you’ve most likely heard of crowdfunding in some form or other, you’ve come across a Kickstarter, Indiegogo, or GoFundMe campaign on social media. Crowdfunding can be a very important tool for startups and individuals to receive funding to pursue their passion projects and entrepreneurial endeavors, it uses the widely untapped network of people built by social media and brings investors and entrepreneurs together, and successfully expands the potential pool of investors on impactful scales.
What is Crowdfunding?
Crowdfunding is an increasingly popular option for small businesses looking to raise investments in a more accessible way. Crowdfunding sites allow anyone to invest any amount, with some restrictions that apply. Regardless of these restrictions, this method of raising funds provides the unique opportunity of allowing entrepreneurs to pitch their ideas and raise funding from future customers, people who believe in the project.
Crowdfunding campaigns also have the benefit of building the audience for your product or service and perhaps reach audiences you might not otherwise have reached for the percentage of funds raised as a fee by the sites. This space opens up an important option for entrepreneurs to build their market research, build their target market, predict demand and raise funding on already agreed terms.
Types of Crowdfunding?
The different types of crowdfunding depend on the conditions that both investors and your chosen platform provide;
- Donation-based crowd-funding is when people give a campaign money for nothing in return. Individuals donating money out of support of the growth of your business, not expecting any monetary reward or otherwise.
- Debt-based donations are peer-to-peer (P2P) lending, which is a form of crowdfunding. In debt-based donations, the money pledged by backers is a loan and must be repaid with interest by a certain deadline.This is considered peer-to-peer lending.
- Rewards: This is when donors receive something in return for their donations. The rewards vary by the size of the donation, which incentivizes higher contributions.
- Equity: standard crowdfunding campaigns do not allow backers ownership equity in the company, equity-based crowdfunding allows start-ups and small businesses to perform rounds of investment in exchange for a portion of their business.
How can Crowdfunding benefit your company beyond the funding you could potentially receive?
Beyond the obvious benefit of raising flexible funding, your crowdfunding campaign can do more than that for your company. As more pledges take place and you achieve your financing goal, your idea is also being validated throughout the process. It both answers your question on whether or not anyone will buy it while saving you from going through manufacturing large quantities before determining real market demand. Acquiring that knowledge will allow you to plan and scale your business informed and with confidence. While validating your idea, pledgers and site visitors who come across your campaign cultivate a solid following and word of mouth for your product while you’re still in the idea stage, this kind of recognition is not easy to come by in the startup scene.
Famous names that got their start from a crowdfunding campaign
If you are, are raising, or are married to a male of any kind, you’ve heard about the Oculus VR headset that’s bringing virtual reality to consumers. Oculus was first funded on Kickstarter in 2012, raising 10 times the original goal at $2.4 million. It was subsequently acquired by Facebook (META) in 2014 for $2.3 Billion.
It’s easy to see the benefits of crowdfunding here, what if Oculus couldn’t have developed their tech to a sufficient level without the funds raised on kickstarter, what if they hadn’t ever been on Facebook’s radar had it not been for the traction gained through their crowdfunding campaign, what if you had the chance to actually make your idea happen?