Finding a gap in the market and filling it is crucial to the success of any organization. Or even better, meeting an unarticulated need. To put it another way, to always be one step ahead.
However, suppose you’re a small company without access to investors. In that case, you may need help to maintain a positive cash flow and grow. You can either queue up at your neighborhood bank and beg for money or figure out how to make it yourself. Many small enterprises have discovered success via the second option, crowdfunding.
Crowdfunding: What Is It and How Does It Work?
Typically, just one or two investors are involved when a company begins operations. The principal investor is often the company’s leader who has risked everything in the venture.
Crowdfunding takes the pressure off of a select few and places it on a much broader base of supporters. Everyone must work together towards a single objective to ensure the business’s success.
The Various Forms of Crowdfunding
The beauty of crowdfunding is that it provides company owners with several avenues for achieving their financing objectives. This improves the company’s odds of succeeding and allows more people to get behind the owner’s goals. The more people who get behind it, the better its chances of succeeding.
For investors, the following crowdfunding models are available:
Crowdfunding with Equity:
Commonly, when a business owner engages in equity crowdfunding, he or she will provide a percentage of the company as a reward for financial backing. As a result of their investments, these individuals get a stake in the company.
As the name suggests, debt crowdfunding involves obtaining loans to start a business initiative, with the promise to repay the loans to investors after specific performance metrics have been met. The loan is paid back with interest in most cases.
Crowdfunding from Donors:
Through crowdfunding campaigns, donors may support a company owner without requiring any return or other compensation. You owe it to your donors to provide them nothing in return.
A reward-based crowdfunding campaign is one in which the company offers something to the backers in exchange for their financial support, such as a thank-you card or early access to a product.
Top Platforms for Crowdfunding
Crowdfunding platforms vary greatly. No corporate enterprise can possibly consider every possible course of action. To maximize your chances of financial success, it is essential to investigate potential locations and evaluate them against your company strategy.
Here are some of the best crowdfunding platforms and their services to aid your decision-making process.
If you look at the best lists for crowdfunding, you will find that Kickstarter is at the top of every single one of them. Many industries, including the music, video game, publishing, art and design, and technology sectors, have benefited from this rewards-based model. In fact, as of this writing, 223,968 campaigns have used the site for fundraising successfully. There is, therefore, a 39.8 percent chance of success if you use Kickstarter to raise money for your project.
If your project’s funding target is met, then a five percent fee is charged by Kickstarter. There is a platform charge, and then there are processing costs. Prices begin at 3% + $0.20 per pledge. If the total amount pledged is less than $10, the cost drops to 5% + $0.05 per pledge.
The next entry on our list has widespread recognition outside crowdfunding circles but is well-known elsewhere. There is a website called GoFundMe. The platform’s loyal following might be a good source of customers for your company.
GoFundMe is a kind of donation that is only accessible in 19 countries and has strict withdrawal eligibility criteria. To name a few:
- License to drive
- Address and phone number for Social Security
- Business or individual bank account
- GoFundMe’s fees are 2.9% + $0.30 for each transaction.
Equity crowdfunding is up next. There aren’t many hurdles with donor and reward-based forms of funding, but equity-based ones need a little more work from a small firm. The procedure of applying for a job is one of them. Businesses must reveal the following as part of this process:
- A description of their business
- Aims in Business
- What is the current total amount raised
- Any big investors
Suppose you’re talking to SeedInvest about funding for your small company. In that case, they’ll look into its legitimacy first and then continue talking to you. It takes a few minutes to fill out their application, but approval may take anywhere from two to three days.
SeedInvest has used its network of over 697,000 investors to assist more than 250 entrepreneurs in raising over $497 million.
SeedInvest’s costs are higher than average. The platform also has a 5% equity cost and a 7.5% replacement fee. SeedInvest’s application process includes an accountant assessment of financials and the payment of a successful campaign fee. SeedInvest offers reimbursements of up to $3,000 to consumers for the costs associated with this procedure. In addition, money changes hands once the objective is realized.
The Last Stage: What Comes Next?
What do you do when you’ve decided on a crowdfunding site, reached your target amount, and received your funds? You should start by expressing gratitude to everyone who helped your campaign succeed. How? With a letter, social media shoutout, discount, freebie, or other gesture to recognize their efforts. Never forget the people that helped you reach where you are now.
Crowdfunding might be the foot in the door when your small company is just starting out and you’re trying to find supporters who believe in your vision. If you own a small company, it’s best to learn about the many crowdfunding alternatives and platforms as much as possible.
Featured Image: Pexels © RODNAE Productions