What is Crowd Funding?
Crowd funding is a great financing source for new startup businesses that have a limited budget.
Crowdfunding is the process of getting funding from a community instead of an individual or finance institution. The network pools their money and resources to support the new business. As a result, you can end up with dozens or even thousands of people putting a little something toward your success. And you can often do this without having to give up any equity in the business.
If you are starting a business you can post your project idea to the community. If the community sees your project and idea as promising, they give you the necessary funding. So this is without any interests or collateral.
Crowdfunding enables the small guys with big ideas to be able to secure funding to start their endeavor.
Crowdfunding originally began as a way to help generate funds for charities. It then became popular for artists, including street performers. This was even before it became a viable funding option for other small businesses.
Is Crowd Funding Popular?
In 1997 the British band Marillion even funded their entire tour through crowdfunding. So since it’s original inception this funding vehicle has been used for a very diverse group of entrepreneurs.
Crowdfunding is similar to angel investing as investors don’t require any principals returned or interests paid. With some crowd funding the business owner can even offer something in return for your supporters’ money.
How Much Work is Crowdfunding?
It can easily feel like a full-time job. If you offer perks, then you will have to keep track of who has gotten what. And you will also need to deal with demands for refunds. Plus, if you do not meet your goal, most crowdfunding platforms will not allow you to keep any of the money. And even if you can, the platform will naturally take its cut right off the top. As a result, you can potentially put in an enormous amount of work and time either less than you were expecting. Or maybe even nothing at all for your efforts.
Did You Know?
Millions of supporters are active in crowdfunding communities with money to lend. Or even give away.
But the average loan amount tends to be smaller. So, on average loan amounts are below $25,000. And in many cases loans are for even smaller amounts of $5,000 to 10,000.
Which Kinds of Businesses Make the Most Money With Crowdfunding?
Very often, the businesses with the most success are the ones which are exciting or interesting, and/or changing the paradigm. Businesses looking to bring to market very different kinds of wares can do well. For example, the iBackPack promised Wi-Fi, bluetooth, several USB ports, and even bulletproof options.
It also became a target of the Federal Trade Commission when the maker failed to deliver. So keep in mind that it is not free money. You do have to do what you said you were going to do. But this over the top backpack raked in some serious cash because it was different. As a result, recognize that a straightforward business (such as a dry cleaning establishment) will probably not attract that kind of attention or money.
Who Does Best With Crowd Funding?
Crowd funding is perfect for entrepreneurs who don’t have a standard business model that fits with normal funding. It is also perfect for new business owners who have great ideas. If they only need a little money to get going, then it’s perfect.