We’re in a unique time-period that stands at the juncture of Internet and business. While few years ago, an entrepreneur would not have even considered creating a website for his business, in the 21st Century such an activity marks the foundational step for any business. However, capital to start a business is as elusive as ever and the current funding environment is still tight!
In more recent years, a new and rather disruptive method of funding has evolved. This unique method involves providing an idea, project or venture funding through raising small monetary contributions from a community of people who are willing to collectively contribute funds in exchange for rewards and/or recognition.
Several large and small businesses have significantly benefitted from the aid received through this method, popularly called “Crowdfunding”, and usually performed via mail-order subscriptions, internet-mediated registry, benefit events and other such media.
However, even though executing a successful fundraising via crowdfunding can be an uphill task involving sheer dedication and immense efforts, it can be an excellent way for early-stage companies and entrepreneurs to validate their business, find startup capital and get the exposure they need to build the startup momentum when compared with other financing methods.
Here are 10 greatest benefits that crowdfunding can bring to the table:
1) It provides access to funds that you need to bring your idea to life.
Every idea needs monetary resources to become a tangible reality. Crowdfunding provides a great and quick alternative to the usual circuitous route of securing funds from accredited investors, banks and venture capitalists. And, what’s even better is that it can be availed without having to give up on your equity or accumulating debt. You can just tap into support from an engaged community through a reward-based crowdfunding platform and raise funds in exchange for some tangible products or other gifts.
2) It helps gather insights from potential customers and hedge risks.
Starting a new venture can a challenging and equally risky exercise. It is almost always impossible to forecast the challenges of market validation or variable expenses. Launching a crowdfunding program allows the entrepreneur gain sufficient market validations through feedback and insights from potential customers, refine their ideas and go-to-market strategies, and thus, hedge these risks efficiently.
3) It doubles up as a marketing tool as well as media exposure.
Using crowdfunding campaign, an entrepreneur can effectively use social media mechanisms to introduce the venture’s overall mission and vision to the potential market. The organic visits received from potential users and fund contributors help in viral marketing and exposing your venture to potential investors. In addition, the free press coverage in the form of feature stories, blogs or print publications that your venture receives paves way for a lasting brand awareness for your startup outside of your personal network.
4) It provides a proof of concept or validation.
Crowdfunding makes possible one of the most difficult part of starting a new venture- market validation. A successful and highly-visible crowdfunding establishes your venture’s credibility because of the support it draws from a potential user base, thus providing proof of concept to potential investors. This exercise also builds sufficient traction and social proof that is critical in charting your path to a successful venture.
5) It presents an opportunity to refine your idea through crowdsourced brainstorming.
New ideas that tend to meet dome unmet need of the market are often challenged by gaps that they must fill to be successful. Using crowdfunding, an entrepreneur can effectively deal with these gaps and bridge them by engaging the crowd to field questions, receive comments, feedback and insight into their idea.
Such valuable feedback helps in fine-tuning the idea through a free, crowdsourced brainstorming.
6) It introduces you to prospective early adopters and loyal advocates.
Through crowdfunding, a business can present their product or idea as well as share the message and purpose behind it to garner the attention of early adopters.
These early adopters are extremely essential to the success of the venture as these are the ones who believe in the story or concept even in its nascent stage and care for its brand and message forming a loyal customer base in the long run, who shall promote your product/service through their social networks.
7) It’s easier and more efficient than traditional fundraising methods.
Traditional financing methods such as applying for a bank loan or pursuing investors, are not just time-consuming but extremely painful too. In contrast, crowdfunding provides the business with seed capital in a far more efficient and effective manner by engaging the right set of people.
One just needs to choose the best platform that suits the business objectives and share their story through a quick video along with some enticing rewards to lure potential adopters of your idea.
8) It provides the opportunity of validating your idea and gauging the size of your market.
This method of financing also serves as a powerful market validation and pre-selling tool for a product or concept to gauge user reaction and analyze the size of the market. Thus, an entrepreneur not only gets to ensure a scalable and faster validation but also the chance to leverage their validation to bring their product/idea to life.
9) It helps in quickly and effectively building awareness for your idea.
Crowdfunding can be a quick and efficient way to introduce ideas to an engaged audience and build awareness with thoughtful marketing. It thus helps grow the market potential of any idea exponentially.
10) It is free!
Crowdfunding platforms usually do not require any fee or commission for participation nor exacts any penalty from the entrepreneur for not meeting the funding goal. On an unsuccessful campaign, all funds get returned to the contributors. However, if the fundraising campaign becomes successful, everyone gets to share the glory of being part of a successful venture.
Thus, the role and benefit of crowdfunding is not limited to just funding your project, but also in providing the exposure needed to validate, execute and grow the venture. Indeed, it is a viable tool with provides the potential for creative entrepreneurs to bring innovative ideas to life in an evolving industry.