Crowdfunding is an alternative way of financing. It is a method in which many people put in relatively small amount of money towards a cause or a venture. Crowdfunding has been around for a long time, but the process of online crowdfunding has taken the idea to a whole new level. Fundraisers in India and other places often rely on crowdfunding to raise money successfully.
Crowdfunding is essential if you are trying to start a business, because crowdfunding not only helps in raising funds but also increases the customer base and making more people aware about the venture. Money is the backbone of any business. Money is needed for everything starting from getting an office space to buying materials and hiring staff.
Therefore, it has become crucial for startups to raise a series of successful funding. Traditionally, startups are likely to seek funds from angel investors and venture capitalists. You will often hear about how various startups have procured a seed or a Series A or Series B funding.
However, raising funds traditionally via investors is not for everyone. Venture capitalists usually invest only on those startups which offer sufficiently high returns on their investment. A startup may not be a good fit for a VC investment for several reasons:
- The startup does not show a knack for a tremendously rapid growth in near future which is necessary for high returns.
- The owners of the startup are not willing about the VCs taking control over how the business should be run.
- A VC may not be interested to invest money on a startup which is still at its infancy and is yet to establish a name for themselves.
However, there is no need to be disappointed because this is where crowdfunding comes to your rescue. Several companies have managed to raise considerable amount of funds through crowdfunding platforms and became extremely successful.
Oculus VR, a virtual reality startup raised $2.4 million on the platform Kickstarter for its product Oculus Rift headset. A year and a half later, it was bought by Facebook for $2 billion. In this article, we will discuss the positive aspects of crowdfunding and why your startup should host a crowdfunding campaign. We can also talk about the Pebble Time smartwatch that raised $20.3 million in Kickstarter, making it the most funded project on Kickstarter till date.
Starting a crowdfunding campaign is relatively easier compared to preparing for VC meetings or applying for a grant. Fundraising sites are usually straightforward to use. You register in a platform by creating an account and then create a campaign page which will be reviewed by the platform moderators. You will be charged a small fee for every successful campaign.
Crowdfunding platforms can act as an excellent marketing tool if used correctly. When you use a crowdfunding platform, you and your project get a global exposure. If you manage to keep your backers and supporters interested and engaged in your project, they are likely to spread the word for you within their network making your network grow. Crowdfunding not only helps you raise funds, but you can also see it as a platform for market research. When you run the campaign, you will be able to access data on how good the market is for your product before you actually invest resources to produce it. The worst that can happen is you fail to reach the goal and the money is returned to the backer. But there is no loss for you, since you did not already build a product.
Lastly, you retain the authority to run your business that way you want, if you have a successful crowdfunding campaign.