The Significance of Crowdfunding for Startups
Crowdfunding is one of the most significant business developments of the last few decades. With high rates of rejection from banks and lenders, the business-funding environment needed a massive disruption, and crowdfunding provided just that. It has become a viable method for people to get their projects and business funded. We’re talking serious Cash Money!
The Evolution of Crowdfunding
Crowdfunding isn’t an entirely new innovation. The concept can be traced back to the establishment of the Irish Loan Fund as far back as the early 1700s. Also, did you know that the Statue of Liberty is standing today in New York, thanks to crowdfunding? Modern-day crowdfunding as we know it, however, started in 1997, when a group of fans donated $60,000 online to fund British rock band called Marillion to fund their reunion.
Inspired by the innovation, ArtistShare emerged as the first crowdfunding platform following the Marillion model. More crowdfunding platforms like IndieGoGo and Kickstarter were later introduced in 2007 and 2009, respectively.
Forms of Crowdfunding
In addition to its increased popularity, several forms of crowdfunding have emerged over the years. We have four main models today.
- Reward Crowdfunding: Investors are offered various rewards & gifts for their support. This is what BuildHer is. A Rewards based platform.
- Donation crowdfunding: This follows the Marillion model, where people donate for a cause without receiving anything in return, except of course that ‘feel good’ factor knowing you have helped or made a difference to something.
- Equity-Based Crowdfunding: This allows investors to own equity in the form of partial ownership of the business based on the funding they provide.
- Debt-based Crowdfunding: also called ‘Peer-to-Peer’ lending, allows entrepreneurs to borrow money to be repaid with low interest.
So What Are The Actual Benefits of Crowdfunding?
It Provides Capital To Finance Your Ideas
Bank loans suck. Even if you are able to meet the stringent requirements, you will still be bundled with a high-interest rate.
Crowdfunding provides a viable alternative to access the funds to launch your business. There’s no need for collateral or meeting ambiguous requirements. It’s just a community of people who believe in your dream and are ready to support it.
It’s An Opportunity to Gauge, Refine, And Validate Your Idea
Have you ever had a period of doubt about your idea? Of course you have, many entrepreneurs do. Crowdfunding platforms provide an opportunity for your idea to be vetted and criticized by a community of experienced investors.
The feedback from your community will enable you to identify essential needs and areas of change or improvement. Overwhelming support would mean that you do have an excellent idea.
Its Free PR!
Did we mention free PR?! A successful crowdfunding campaign can attract interest from both traditional media and social media channels.
Most crowdfunding platforms have social media sharing mechanisms incorporated so that users can share specific projects and campaigns directly with their social media followers. This offers a painless way to get referrals and increase awareness about your project.
It Builds Interest From Experts And Potential Customers
Crowdfunding can help build awareness for your idea. It allows you to introduce your idea to potentially thousands of fans and to share the message behind it to your prospective customers.
Early adopters of any business care about the brand and are likely to be loyal customers for life!
It Builds A Network of Investors
A Crowdfunding campaign opens up an opportunity for future dealings. Investors in the early stages of your business will likely invest in your business or ideas in the future.
It Enhances The Credibility Of Your Idea
Angel Investors and Venture Capitalists (VCs) are also more likely to invest in an idea that has already gained proven traction through a highly successful crowdfunded campaign, because this tells them you already have a following, and ready customers. It serves as proof of credibility and it shows that your idea has sufficient market validation.
It’s Cheaper Than Traditional Bank Loans
Apart from being a lot more accessible, sourcing for funding via crowdfunding is relatively cheaper. Most crowdfunding platforms have zero charges to set up your campaign and only take a small percentage as a fee for hosting it. With BuildHer we go even further by reinvesting a 1/3 of our fees back into the community to help women with the fees for legal representation, or women struggling with homelessness. That’s part of our Pay-It-Forward model.
Crowdfunding is the unique and trendy way businesses source for funds today. We have seen countless stories of entrepreneurs who have experienced huge successes as a result of the funds raised and the exposure that crowdfunding provides.
If you are not leveraging crowdfunding, then you are missing out. The best part is, it shows no signs of slowing down!