“Crowdfunding” is a method of raising capital through the collective effort of friends, family, customers and individual investors from all around the world. It has become a popular way of financing projects when other traditional means do not work. It is a great way to build awareness and achieve maximum reach and exposure for any kind of event.
Crowdfunding is a remote concept and has been around even before the internet existed. The most famous crowdfunding campaign in older times was the “Statue of Liberty” which was funded by the citizens of France and the United States. The internet however made crowdfunding rather accessible and easier. Crowdfunding allows the organisation to increase the customer base with significantly lesser time, manpower and money than the traditional forms of fundraising.
It can be tough to know the best way to raise money. So, look at our crowdfunding pros and cons in order to capitalise on the former and overcome the latter.
PROS OF CROWDFUNDING:
1. Low Risk:
Financing the entire event from your own pocket is a very risky business, even if there is a need for it. Crowdfunding requires very small expenditure before you start the campaign. There is a possibility for losses to occur. But it will be much lesser as the attendees have cumulatively paid up a good sum for the event. So, there is a low probability for the loss of money from your pocket comparatively.
2. Loyal Customer Base:
Crowdfunding campaigns allow entrepreneurs to not only present a product or a business but also give them the ability to share the purpose and message behind the event. People who believe in the campaign are the ones who invest in it and trust in the success of the event in the long run. The early adopters are the soul of the entire campaign as they help spread the word genuinely. These form a loyal customer base since they care about every nitty-gritty of the campaign. You can use this customer base for future events – to market other products, business, ventures etc.
3. Reach & Exposure:
Launching a crowdfunding campaign will get you potential investors or buyers which you normally wouldn’t have known. These financers already have a large network of potential supporters. And these community-based people help spread the word tremendously and create pre-buzz about the event too. Most of the crowdfunding platforms provide the newcomers with a great boost as per the reach and exposure. There are a lot of people who invest in familiar kind of projects. This familiarity makes it easier to target potential funders. Raising funds via traditional form doesn’t let you gain that additional exposure right off the bat. And these funders come within the platforms or referring links who then proceed to share it with their friends and networks, thereby giving entrepreneurs maximum reach and exposure.
CONS OF CROWDFUNDING:
1. Investment of Time & Money
Although crowdfunding is better than the traditional forms of fundraising, successful campaigns take up a lot of your time and investment. The time required will be less than trying to carry out the entire project. Time is the one major aspect founders/entrepreneurs underestimate the most. Make sure you set aside enough time to prepare and run a campaign. Even though it is possible to launch a crowdfunding campaign for free, you will have to spend a little bit of money launching your campaign. A booming crowdfunding campaign has a great copy, rewards at different levels, photographs and video graphs to grab people’s attention and interest. All these techniques will help you get your campaign off the ground. It will be a good idea to create a budget before you start creating a crowdfunding campaign.
2. Risk of Failure
According to the recent stats on Statista.com, as per a January 2019 report, 63.37% of crowdfunding campaigns failed. And that’s a huge percentile of unsuccessful campaigns which informs you how competitive and tough the crowdfunding business is. And in no way should this be the reason to not launch a campaign. For many entrepreneurs not reaching the desired funding is not the outcome of their project. Quite often, they will revise, improvise and relaunch it later from funding with a different source.
3. Cuts from your Proceeds:
If you are launching a crowdfunding campaign, you probably have to pay the desired platform a fee. Every platform has a different processing fee. The fee is not exorbitant, but it can’t be taken that lightly. If you have a significant following it makes sense to crowdfund without a platform. Generally, platforms cut off somewhere between 8%-12% and that’s a lot. So, you really have to budget the entire event accordingly.
“Crowdfunding” can be fantastic for some and terrible for others. If you are trying to decide if you should crowdfund your project, look for similar projects online and see if they have been successful in the past. It will probably be a good place to launch your idea in the crowdfunding domain. And, if you want your launch to be a secret, then it’s probably not for you! Carefully go through the pros and cons of fundraising before making the final decision.
“Crowdfunding” has turned out to be a valuable and viable way for businesses to raise money. And, hence platforms are finding more and more creative ways to fund new projects and businesses.