Previously, it was incredibly difficult to raise capital without having contacts and experience. Now, whether your passion is technology, design, law or education, you can crowdfund your way to your dream. Crowdfunding is a legitimate, but not necessarily reliable, way to bring in an array of benefits to entrepreneurs, not least of which is raising funds for your latest business venture. So, why should you crowdfund? Below, we’ve listed all the benefits of this method of raising to help answer this question for you.
Darren Balcombe is the Deputy CEO of Capital Enterprise, an organisation dedicated to start-up growth. With over 13 years of international experience in start-up advisory, Darren has worked across multiple industries to empower start-up founders and businesses to achieve growth.
The core concern and principal benefit of this method, and probably the reason you clicked on this article, crowdfunding is a brilliant way to gather the funds that you need to get your ideas off the ground. Every idea needs resources to become successful. Prior to the mainstream adoption of crowdfunding platforms, people with amazing and innovative ideas would have to undertake the long and difficult process of raising equity investment or government sponsored grant funding in order to raise from external sources - if they did at all. Now, crowdfunding provides anybody with the means to obtain the funds that they need, so that they can launch an idea quickly, all with the support of their community. We’ve all seen on social media how crowdfunding has completely changed a variety of industries - hospitality, travel, tech, beekeeping - you name it!
With crowdfunding, you can gain insight from the people that really matter - your potential customers and clients. Crowdfunding offers you an invaluable source of feedback and insights, enabling you to make necessary changes even before you’ve finished raising. This isn’t necessarily something that angel investors or venture capital funds can do. Many companies reach out to those on their crowdfunding platform, asking them which designs, colours or ideas the customers liked better. Think of it like twitter poll, but for people that are genuinely invested in your idea and company.
Market validation is a powerful tool to have in your belt before attempting other kinds of investment, but it can be a long and expensive process. Now, with crowdfunding, it’s faster and easier to reach. Similar to with market research, crowdfunding allows you to conduct polls to test a product or concept. This is generally done early in the process and is imperative in helping a company decide whether or not the product or service is worth putting out to the world. Showing to your investors that your idea is viable can be difficult, but with a successful crowdfunding campaign behind you, you have all the market validation you need.
Crowdfunding is also a great marketing platform as your campaign is shared sometimes worldwide over its course. It only takes one post to go viral - within minutes your concept could be trending on Twitter. This is clearly a most desirable outcome, encouraging people to engage and follow your venture. People can also track your progress, which adds a sense of security to your investors, and helps to promote your brand. A win-win.
Crowdfunding is risk-free
You can promote your idea, and see if you can raise the remaining finance you need to complete your round. The worst-case scenario is that you don’t meet your target, but at least you don’t lose any - meaning you could try again with a different angle or focus. Crowdfunding is seen as an alternative finance option for many, especially if they have struggled to gain bank loans or find traditional investors.
You’re introduced to potential loyal customers
If somebody believes in your product to such a degree that they’re willing to contribute to its success, they’re could easily become your first prospective customer or client. These people are what are known as “early adopters”, and they’re an integral part of any company. They will help spread the word and support your venture, and are likely to be loyal customers throughout the life of the company.
It’s a lot easier
We’ve already mentioned how challenging applying for a loan or trying to gain capital investments was. They can be painfully long and trying processes for founders - and they can really knock the wind out of your sails. The application process for crowdfunding can by contrast be straightforward and simple. Of course, you have to market and dedicate a lot of time towards your campaign before it goes live, but to some this is a much more attractive option than fundraising for a traditional equity round.
It gives you the opportunity to pre-sell
If you haven’t yet taken a product to market, crowdfunding gives you the opportunity to pre-sell. This is a great way to gauge how people will react to your product, consider if your pricing is fair, and discover if anything needs to change. Always analyse your market, and be prepared to make necessary changes. Think of it as a test-run or market research. With traditional forms of funding, this may not be possible.
To summarise, crowdfunding has raised millions for businesses at all stages and sizes, and could be the best way to finance your company according to your needs. If your business is right for crowdfunding, all the benefits above should be enough to convince you to give it a shot.