crowdfunding for startups

Crowdfunding for Startups: The Ultimate Guide to Help You Raise Money

Elena Hudgens
By Elena Hudgens 8 Min Read

With a lot of other challenges, the raising capital part is not even worth thinking about. The idea and innovation are what drives a company to succeed, so they just need enough money to get started.

Basics of Crowdfunding for startups:

In the 21st century, crowdfunding has emerged as a new business model. Through various social media platforms and crowdfunding websites, it is possible for entrepreneurs to get capital from investors outside of their own networks-including family members or venture capitalists. This can help grow entrepreneurship by expanding the pool of people who are investing in companies beyond those traditionally covered under owners, relatives and VCs.

Here is a brief overview of some things you should be aware of if you opt for crowdfunding for your startups:

1) Research what works and doesn’t work with crowdfunding

2) Start off with a small goal 

3) Make sure you have rewards that appeal to your audience

4) Set up social media pages. Read more

The Benefits of Crowdfunding:

One of the best way to raise funds is through crowdfunding and more people are turning to it for a variety of reasons. It’s an excellent resource for raising funds, and the tools that come with crowdfunding websites make running successful campaigns easy. 

The benefits of using crowdfunding range from having access to social media channels, not giving up any equity or paying hefty fees when fundraising, reaching investors who might have otherwise been uninterested in your company’s idea or product – these are just some examples of the many benefits associated with it.

The Process of Crowdfunding:

It is a process of raising money from a large number of people through an online person or persons requesting funding.

Crowdfunding, in a nutshell, is all about spreading risk and responsibility for a project amongst people who have fewer funds to invest. It’s been popularised because it allows regular people to fund their favourite projects regardless of how much money they may or may not have in their bank account.

Crowdfunding campaigns typically take place over a certain period of time, such as 30 days. After this period, if enough donations haven’t been made, then the project will fall through and no further donations will be collected.

There are many different types of crowdfunding that can help you raise money for your business or venture:

DONATION BASED:

Giving to a project by means of donation-based crowdfunding is preferable to receiving no reward at all, while the amount you give doesn’t matter as much. Though this method of financing may be preferred for some projects, it has very few benefits when compared with other methods such as equity investment or loan.

If you want to raise money for your idea, you can try crowdfunding. With donation-based crowdfunding, the entrepreneur pre-sells their product or service and collects a group of backers who make small donations toward it. To encourage higher donation amounts, the entrepreneur may also offer token rewards that increase in value or significance as more people donate. The donor retains full ownership even if they contribute with equity shares instead of cash contributions.

DEBT BASED:

Debt-based crowdfunding is a type of crowd based lending. It encompasses several different types of loans, including mini-bonds and peer to peer lending (sometimes known as ‘peer 2 peer’ or ‘P2P’ lending). By removing the middlemen involved with traditional funding methods, costs can be lowered for business borrowers while potentially helping investors get better rates of return on their investments.

KEY TAKEAWAYS

  • It is a loan with lower interest rates, and it’s more flexible than bank loans. 
  • It allows the repayment to be easier on you – your brand gets a lot more reach among the masses!
  • The whole process of applying for this loan is accessible, affordable, and has no impact on your credit score.

EQUITY BASED:

Newer and growing trend in startup or business fundraising is crowdfunding, which allows for entrepreneurs to raise capital on their own. Crowdfunding puts the control back into the founders hands. 

KEY TAKEAWAYS:

  • Equity crowdfunding is the process of raising money from a large number of individual investors through investments in securities.
  • It involves offering an investment opportunity to a group or market, which are typically offered as shares or bonds. 
  • In contrast with debt financing, equity fundraising does not require any financial backing by banks and other traditional sources such as venture capitalists.
  • The term “equity” refers to ownership stakes in companies traditionally traded on stock exchanges; it also includes the possibility for shareholders who invest their own funds into projects that they would like to see succeed (e.g., startups).

REWARDS BASED:

The concept of rewards-based crowdfunding is a type of small business financing in which entrepreneurs solicit financial donations from individuals as return for products or services.

Rewards crowdfunding is a new way of financing businesses without the burden of repaying loans. Before you jump in, consider the pros and cons because there are certain risks involved with this method.

PROS:

The most obvious way to raise funds is having a crowdfunding campaign. If you don’t receive enough traction, it might mean that there’s not sufficient demand for your startup idea. It’s an awesome way to “fail fast” as most entrepreneurs recommend – if you’ve done your job well, then this campaign will build awareness in audiences that won’t have heard of your product before.

CONS:

You may not reach your goal and have to give back any amount raised if you don’t- or else risk having other individuals steal your idea. 

To avoid this from happening, patents are important tools for protecting yourself before you pitch an idea online and expose it to people who could be competitors.

Crowdfunding: Pros & Cons

Culmination:

Crowdfunding is a massive industry—and its scope is constantly expanding. As a result, there are lots of crowdfunding statistics to consider, each of which tell us a valuable story about running a successful campaign. Here are some crowdfunding statistics to consider while you decide how to run your crowdfunding campaign or whether you even want to run one in the first place.

Thus crowdfunding for startups is a great way to raise funds for your business, charity or personal project. It can be intimidating to plan out an entire campaign, but with these tips, you’ll be on your way to crowdfunding success in no time!e platform. The majority of the time, projects are funded by people who have never met! 

Share this Article
Posted by Elena Hudgens
Follow:
Elena Hudgens is an entrepreneur with 10+ years of experience. She started her journey by building her own e-commerce website on Shopify and turned her $1000 savings to millions in just 2 years. Soon she started different ventures in which she failed and succeeded. And now, she's on a mission to help other entrepreneurs with her life and business lessons.
10 Comments