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What is Crowdfunding

what is crowdfunding?


All startups and businesses need funding to start the business successfully. But to do so it is necessary to find investors. Crowdfunding is one of the ways to raise money for the business or any other purpose. In some cases, it is for a charity cause or to conduct any events. It is said that crowdfunding was started in the 17th century but many others believe that it was started by Joseph Pulitzer who collected money to pay for the pedestal that holds the Statue of Liberty. In this article, you will be able to learn about product and equity crowdfunding.

what is crowdfunding? Startup COE

What is crowdfunding?

In crowdfunding, you will be collecting a small amount of money from a large number of people. It is the process of breaking the traditional small group of investors, venture capitalists. Through social media, it is easier to network and get a huge number of investors. We can also find investors through many crowdfunding websites such as GoFundMe, Kickstarter and much more.

Types of Crowdfunding:

There are three types of crowdfunding, which are given below.

  • Equity-based crowdfunding: In equity-based crowdfunding, the contributors get a share of the company by trading the capital. In this way, they also get returns based on the distribution. This is a very famous way of crowdfunding.
  • Reward-based crowdfunding: In reward-based crowdfunding, the contributors get some rewards for their contributions. These rewards are usually the products of services.
  • Donation-based crowdfunding: In donation-based crowdfunding, the people contribute to a particular cause without expecting anything in return. This is usually done for a charity cause or some other emergency purpose.

Equity crowdfunding:

There are so many ways to raise money for your business. One such way is equity crowdfunding. In equity crowdfunding, the people who are investing in your business are entitled to a share of the company equivalent to their investment. Through this, the investors would get some financial security from the company. Thus will also earn from distribution and profits according to their investment.

Unlike some traditional methods of funding which focus on a small group of investors, equity crowdfunding tries to cover a large number of investors. This can be very useful in raising large amounts of money. This can be done through many funding websites such as StartEngine, WeFunder and much more. Social media and the internet is making it very much easier to find a large number of investors and raise huge funding.

Product crowdfunding:

  • Crowdfunding is not just about raising funds for a business, it can also be used to raise brand awareness which could be used to bring in more customers to the business. This is known as product crowdfunding. While a company conducts crowdfunding they are also building a loyal fanbase for their products. Thus, crowdfunding can be easily used to create brand awareness and leverage your investors. Through this, the company can easily get genuine feedback and validation directly from their ideal customers.
  • It can take years to form a loyal customers database in a business. But through crowdfunding, a group of people are constantly engaging with your products. This may help you build awareness of your products and automatically it will result in huge sales.
  • It will also help the business to pre-sell a new product to get genuine feedback from loyal customers. They can easily upgrade the products and get insights about them.
what is crowdfunding? Startup COE

How crowdfunding is different from traditional methods

  • Traditional funding means finding a small group of potential investors for your business. They are done mostly offline. Whereas crowdfunding is mostly conducted online.
  • Both the traditional funding and crowdfunding methods require a certain amount of preparation.
  • Crowdfunding is a type of fundraising. It is conducted to raise funds for a business by finding people who are interested in your cause. Whereas traditional fundraising could be for many reasons it is mainly for donations.

Benefits of Crowdfunding:

  • Usually, it is very much harder to find potential investors for a particular business. In online crowdfunding, it is much easier to showcase the potential of a business and its products. And potential investors could be easily found online who will be interested in your business. Through this way, it is easier to access the capital.
  • Even though the number of shares is increased and the number of investors is huge the power within the company cannot be diluted. Having huge several investors means there are no small group of stakeholders who possess much power in a company.
  • Starting any business is a risky decision, it has its difficulties and challenges. There are so many things that could go wrong and result in loss. But if the company survives the market and starts making a huge profit then it is very much possible to get a huge return by investing in them. Investors will have a huge return for their investment in the business.
  • Crowdfunding is a great way to find loyal customers. One of the huge challenges in a startup is getting genuine feedback. Through this way, you will be able to find your ideal customers and get feedback for improvement.
  • In crowdfunding, you will be able to not only raise funds for the business but also voice out your message and purpose. People who invest in your business are those who believe in your business in the long run. They are the ones who will be your most loyal customers. Thus, it is important to build a loyal customer list. They are the ones who will help you in creating brand awareness.

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Crowdfunding is a great way to start your business with the correct funding. They will help you in raising the funds you need along with building loyal customers. Crowdfunding creates huge brand awareness and gets genuine feedback. You can choose any one of the crowdfunding types which is suitable for your business. We hope that this article gave you an insight into crowdfunding and its types.

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