Most of the business expert suggest that crowd funding is the one of the most reliable way to manage finance for your business. Apart from great ideas, to run a business, you need to start thinking of how it would be financed. Crowdfunding offers the best solution.
After analyzing the advantages and disadvantages of starting a business, you need startup money to kick start. Crowdfunding can be a great help for shaping your dream business. I am quite sure that you are aware of crowdfunding, aren’t you? It is easy; these are funds collected from a large number of people or the crowd, for some service or a project.
A very rudimentary example would be a street entertainer, who with the intention of making money, performs in front of the crowd, and the people as a part of the crowd, donate according to their degree of satisfaction. But is that it? No, as is with most of the terms becoming popular in the cyber age, there’s more to it than meets the eye. Crowd funding, from its very generic meaning of funding from the crowd, has changed significantly to ‘something else’. Let us take a look at how crowd funding is affecting the personal and professional aspects of our lives.
An alternate financial solution
Crowd funding is a blessing in disguise for the budding entrepreneurs. It is your one-word answer to how to fund startup businesses?. The biggest issue for a start-up that is still in its nascent stage is most often, financial. Most of the start-ups that are making the headlines nowadays are the brainchild of a bunch of college kids (or students). People find business loan a simple way to raise fund, but there are multiple ways to minimize the business loan. Crowdfunding is one of them.
Why you should care –
And the next question that automatically pops is, “Huh, so?” For college students, a task as simple as buying a new toothpaste is that of utmost priority, and they take it seriously. To buy or not to buy, is the most asked question. However, for ideas that generate in the brilliant young minds, a shortage of funds would mean an end of the road to their dream destination. The start-up culture in the country is on a steep ascent and many areas with leading technical institutes have now become hubs for at least 20 start-ups covering everything from food to travel.
A boon for start-ups –
With a rise in the number of possible Silicon Valleys, our country is about to get, it becomes difficult and illogical for the big and known funding firms and the banks to fund each and every start-up with whatever it needs. The market crisis of 2008 is another reason because of which the banks and firms are wary of investing money in firms they are not sure of. With the entrepreneurs in a fix and the banks pulling away, entered the term crowdfunding and took the start-up industry by storm.
The purpose of crowdfunding –
Use your skill to pay the bill
And now let us come to the question: What exactly does crowd funding mean in the year 2015? Merriam-Webster defines crowd funding as “the practice of soliciting financial contributions from a large number of people especially from the online community”. But, going by a book as un-happening as a dictionary is boring, isn’t it? Allow me to present you with some examples: Suppose that you have a god-gifted skill of making lemonades.
Do what you do best
You make the best lemonades in your state. Now, on a very hot day, when you presented a random Sharma aunty with a glass of cool lemonade, your aunty pops the question of taking it to the public. You then have the brainstorm of making money from your skill.
Quick start your business with funds from the interested audience
However, a business as small as selling lemonades requires capital, not as much as compared to the other ideas, but still a significant amount and in case of heavy traffic; you would be unable to meet all the demands, if you fall short of capital. Now Sharma aunt, who is still enjoying the aftertaste of the lemonade, comes to your rescue and opines that she would help you with the initial funds and that she would also ask other acquaintances of her to help you with the same.
With some starting hiccups, you establish the start-up of lemonades and soon take it online, with frozen lemonade delicacies now being delivered at doorsteps. People taste, enjoy, check the reviews and order more, and since, the fan base is on a rise, the funding now becomes generous. People want you to expand the business. This is the central idea of crowd funding.
The bridge between your dreams and reality
One of the first things, however, which is infinitely important for a start-up is to start the process of asking for funds much before they actually go out in the market to make it big. It would be a similar scenario when a fisherman starts weaving his net only after he reaches the middle of the sea. Preparedness is one of the most important things for this field.
It is extremely important to start raising funds from the time it is an idea and hasn’t taken the form of a start-up yet. It is the responsibility of the entrepreneur to nurture the idea into a full-grown, well-funded start-up
Crowdfunding may be of various types
- Donation based funding
- The first one is when people become generous and donate so that a person or a service that they get emotionally attached doesn’t have to face financial problems in the course of progress. The lemonade example or the donation made by a society to send an underprivileged teenage prodigy to the Olympics qualify as a donation-based funding.
- Reward based funding
- On the other hand when the people who invest in the idea are promised a reward on whatever they donate, then that type of funding is reward based. Giving official merchandise of your company to the loyal investors from time to time, is reward based funding.
- Equity based funding
- What if, the investors buy equities, and then profit from the company’s returns? Well, in that case, every shareholder becomes a part of ‘the happy family’ raising funds and gets dividends from the profits as per the investment. This then is an equity based funding.
- Debt funding
- The above three are the major kinds of funding that is present these days. However, another kind of funding, the debt funding is also present at the disposal. In this case, the start-up people borrow money from others and give back the loan in installments till the total debt is paid back. There are few sites who take care of such transactions.
The benefits of crowdfunding –
But what are the benefits of crowdfunding?Here is an example: My friend currently studying in his second year has started a start-up that goes by the name of dealwithus.co.in. Now, in the third year of its running, it already has a steady traffic and the number of followers is slowly on a rise. Although the venture is totally online, he was unable to get through and reach out to the people due to lack of funds.
He then took to the social media and amassed local support that reached to the investors and hence funds flowed. Right now, an intrinsic cell has donated huge funds to the start-up to develop further.
What are the benefits of Crowd funding?
- It provides access to capital.
- It reduces risks in your endeavors.
- It is a great marketing tool
- It helps you meet with prospective loyal customers.
- It is easier than applying for a loan.
- It is completely free.
Future of Crowd funding –
As you know, it was a huge setback for the potential business men and other creators, social workers, artists and non-profit organizations when the market hit recession. No bank would provide loan to a person in an unstable platform, be it a period of recession or not. In such circumstances, raising enough capital to start up a new business or expand an existing one can become quite challenging. So, what do you do when you such a situation hits you? Do you just sit back and lose hope? No!
There are other platforms too. I don’t have to tell you that there are a number of people in the world who would love your idea or whatever it is you are doing and would like to see your services live in the market. But, what I can do tell you is that those interested people can become your potential investors.
Plenty of fish in the ocean
Moreover, crowd funding is becoming more and more popular with each passing day. There are more than 500 crowd funding organizations running at present all around the globe, needless to say, the future of crowd funding is even brighter. So, it is better to learn ‘how to do crowd funding’ when there is still time. I have closely watched the trends in the crowd funding resources and the future of crowd funding looks something like this:
- Growth prospects
- Since crowd funding has found its popularity among masses, this platform is raising around $5 to $7 billion funds every year presently, and these numbers are expected to grow in the future.
- The global potential
- The global crowd funding potential is estimated to reach somewhere around the potential of a hundred billion dollars in terms of capital by the year 2025. With these facts in light, it is not hard to calculate that more businesses and entrepreneurs are turning towards crowd funding rather than burying themselves in the pressure of loans.
- No need of middle men
- Startup companies and business persons have an advantage of directly interacting with the investors by taking crowd funding into account. More people are realizing that they do need to spend extra capital on middle men to get in touch or instance, a real estate company can easily raise capital through crowd funding without having to spend enormously on agents or brokers that only tend to escalate the total cost of the project.
- Social media savvy platform
- In today’s world where everyone can be seen stuck on their phone’s screen to update their status or see what’s going on in the world around them, how can we underestimate the power of social media when it comes to raising funds for a business or similar project? Startups as well as large businesses rely heavily on social media to reach out to their potential customers and investors. Thus, many crowd funding sites help create a positive hype about the user’s campaign to generate more traffic and raise more capital as a result.
- An ocean of opportunities
- Crowd funding is emerging as a modern financial model. Most of the financial organization and investors are joining the revolutionary wave of equity crowd funding. The financial institutions now describe the crowd funding market as an ocean of opportunities, they are even earning their brokerage by putting themselves in the shoes of advisors and are advertising about crowd funding.
- Easy financing opportunities
- This modern and vastly flexible model allows the entrepreneurs and business persons to connect with most celebrated investors with least efforts. Also, according to a study conducted on the financial trends, it has been revealed that about 10% of the active angel investors have shown interest and are actively participating in the equity crowd funding platform.
- A ray of hope for niche specific platforms:
- Although most of the popular crowd funding websites allows users to get funds for several markets, many crowd funding sites have developed themselves in a specific niche. Such niche specific platforms help emerging businesses to reach out to their audience in lesser time and better way and also provide them much better chance to get noticed by potential investors as interested people are already present in their chosen network area.
Important Tips for Crowd funding campaign
Since crowd funding platforms have gained much popularity as a potential and more promising financial model and more startup businesses are turning towards it to help expand their business, this platform has become rather ‘crowded’. So, in order to make your proposal stand out from the rest, you need to have a few tricks at your side that will help you in launching and running a ‘successful campaign’. A solid plan, personal approach and support, follow through, positive approach to feedback can help you do the trick is the correct approach to the question ‘to ‘how to fund startup business’ or how to do crowd funding.
- Have a solid base
- As they say, daydreaming won’t take you near your goals; you have to take real, well-thought steps to make things happen. The same is true in the crowd funding platform. Every successful campaign sees success because of a solid base, i.e. plan. So, do your research, find out what works and what doesn’t, take advice from other entrepreneurs, network insanely, make your presence worth noticing on the social media sites and popular blogs to reach out to the most widely spread audience and potential investors.
- Understand the importance of pre-launch support
- In my experience, I have learnt that it is very important to have a backup plan. If you do not reach out to prospective supporters before making your campaign live, your campaign might not be that successful as it should be. Now take this scenario for instance, an entrepreneur reaches out to well known celebrities, leaders and other established supporters to back his campaign and spread the word, and another entrepreneur makes his campaign live without any support, pretty much on his own, who do you think is more likely to have a fruitful result? That is exactly the point!
- Have a personal approach
- Reach out to your audience, tell them how passionate you are about the project and show them some proof that you are actually engaged in what you say. You can make a personal video and post it on your social media sites and blogs, or send e-mail newsletters explaining the idea to your network. In other words, network, network and network like crazy!
- Respond to feedback
- Another important part to run a successful campaign is to listen to what your supporters have to say about your ideas and then respond to them by adjusting to the resourceful feedback and better marketing strategies. It will help you connect better with the audience.
- Take your campaign offline
- Although it is true that crowd funding mainly runs on an online platform. However, you cannot the importance of your real world presence. Offline opportunities will help you build more engagement about your campaign among the masses. Personal interaction is what will help you move up the ladder. Let your supporters and audience see what goes on behind-the-scene and how do you engage in the creative process. Keep sharing updates with them and if possible, offer some rewards in return.
Crowdfunding is always a good option; it has collective responsibility of the group of people. They even market your product, great market reach. But too many partners with you all the time. As usual every fund has it is own pros and cons. You think what type of fund you wanted for your business, how many obligation you would sustain along with business responsibilities.