How Crowdfunding Helps Startups

We often hear people thanking someone else for their success, be it their parents, mentors or spouse. Have you ever heard of someone thanking the crowd for their success?

While thinking of starting your own business, the first thing that comes to one's mind is funding. Personal savings, loans from friends, relatives, and bank loans are the most popular ways to fund a business startup, and with a detailed business plan, an entrepreneur could pitch to Venture Capital firms or Angel Investors for funding. With the change in era and technology, we now have an alternative source of funding available for startups which is Crowdfunding.

For those who are not familiar with the concept, online crowdfunding is an alternative way to raise funds from a large number of people via the internet. All you need to do is prepare a campaign and upload it on a crowdfunding website and make it viral with the help of social media. People who genuinely care about your project and find interest in the same will contribute to it. In return, they will get a reward or equity as the case may be.

As there are various types of crowdfunding, two of them which fit best for startups are:

Rewards based Crowdfunding - Under this type of crowdfunding, the backer gets a reward in return for his contribution. The reward could be a handwritten thank-you note or the early bird customized product itself. It depicts the gratitude of the project owner towards the backer, these are those things that money can't buy and gives a special feeling to the backer.

Equity-based Crowdfunding - Here, people who contribute to your campaign will receive equity/shares from the company in return.

 

With this unconventional technique of raising funds, the financial woes of entrepreneurs are lowering. They now do not have to knock on the door of investors, pitching and convincing them till the very end. You do not need to be frantic and give presentations to numerous people. All you need to do is present your business well online.

Online crowdfunding enables entrepreneurs to pitch their ideas to a broader audience rather than just specific investors. With social media prevailing so much nowadays, it is much easier to find like-minded people to contribute to your project. Anyone can contribute to your idea; you just have to make sure that people know about your project.