What is crowd funding as a source of money for a startup

What is crowd funding and can it work as a source of finance for your company?

Crowd funding is an exciting new development to challenge the traditional method of getting financing for small businesses and startups. Now instead of drafting up endless business proposals and heading in to see the bank manager you can solicit investments from all types of people all over the world.

How does the crowd funding method work, and will it be beneficial to your business?

It takes your good idea and puts it in front of the eyes of thousands of potential investors, by signing up with crowd funding sites like Indegogo and Kickstarter you can excite and inspire investors to donate or invest in your great project. They may invest $5 or $5000, you just have to write up a compelling project description and it never hurts to offer exclusive rewards to your bigger donators.
By getting like-minded people who really believe in your project to support you, you can get financing with little or no expense to yourself. So crowd funding can work for you.

Types of crowd funding

There are a number of ways to go about crowd funding, here’s a brief breakdown of the common types:

Donation

The first is straight crowd funding – the donator expects nothing in return for their investment, they simply get the satisfaction of contributing to a worthy cause or project. You may want to offer exclusive bonuses to encourage bigger donations but many people will donate smaller amounts with no reward.

Equity

The second is Equity Funding – The investor will receive a stake or share in the company comparative to their investment.

Loan

The third is Loan funding – similar to bank loans, the investor will get their money back with interest, the difference being that the loan is spread over thousands of investors.

Conclusion

Most companies will go with straight crowd funding for obvious reasons and it can work very well for those who are prepared to create an engaging campaign and interact with their investors.

So if you are struggling with the traditional methods of gaining finance for your company or startup, you may want to take a closer look at the possibilities of crowd funding.

References

Crowdfunding includes a definition for Charity Crowdfunding

UK Crowdfunding

 

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