Crowdfunding: “The New Kid on the Block” in Business Funding

Businesses begin with an idea to address a need or solve a problem waiting for resolution. We’ve seen enough startup launches to know that there isn’t a lack of great ideas in the business world. But for most people, the dream of starting a business is just that — a dream. In fact, a 2015 Gallup poll shows that although about one out of four Americans have considered starting their own business, only about 13 percent take the plunge.

There are lots of reasons would-be founders never take the plunge but two of the most common include lack of knowledge and lack of funding. Learning how to launch a new business is not a major hurdle. There are all kinds of online resources and even step-by-step courses you can take.

But for many people, figuring out how to fund a new business venture can be one of the biggest obstacles holding them back from chasing their dreams. Unless you’re well-off or have excellent credit, options can be limited. To fill that gap and enable more people to start their own businesses, Congress created a legal framework to allow founders to raise small amounts of capital from a large pool of investors. This is known as crowdfunding.

Crowdfunding for business

Crowdfunding has been around for about five years. It first became popular among non-profits, artists and individuals. Over the last few years though, crowdfunding has become increasingly popular to fund startups and growing businesses.

But how exactly can crowdfunding help you launch your business? What are the benefits of going down this route, compared to the more traditional funding options? Here are three reasons crowdfunding might be worth a try to fund your startup.

1. Crowdfunding can help you establish an audience for your product or brand. Your donors or investors are more than stakeholders in your company; they can also be your brand’s direct and most immediate customers and clients. At the very least, you can leverage the connection to help give your company that extra boost in visibility and reach.
2. It can boost the company’s financial standing and encourage future investors. Financial experts explained that a business’ crowdfunding performance can have significant impact on its ability to attract external, later-stage funding. Businesses that have earned $3 million from crowdfunding campaigns have 71% likelihood of getting external financing compared to those with a lower crowdfunding performance. The logic is simple: Serious investors are looking for businesses with a strong market and funding presence. It is easy for them to invest in a company that has earned millions from a crowdfunding campaign because it means that company has a strong market presence and therefore, high potential of return of investment.
3. Streamline your fundraising efforts for efficiency. Everything you need to market your company to potential investors is readily available online through the various crowdfunding platforms. Most common crowdfunding platforms offer guidance to walk you through the steps of setting up and launching a campaign. Most of all, reaching out to investors becomes much more convenient. Rather than pursue them individually, you can simply point them to your online crowdfunding portfolio. This is less stress and hassle for you, and more convenient for your investors.

More and more entrepreneurs and businessmen are turning to crowdfunding to get the investment capital they need to get their businesses up and running. But while it looks and sounds easy and convenient, it also requires considerable planning, strategy, a dash of creativity and most important, persistence, to make it a success.