Crowdfunding is one of the hottest new strategies for small business owners and entrepreneurs to raise capital for their startups, expansion projects or new ideas. This investing style first saw widespread use in 2012, mostly through online platforms like Kickstarter and GoFundMe, and it’s still going strong for 2013.
What is crowdfunding?
Basically, it’s getting a whole bunch of people, the “crowd,” to believe enough in the concept of your business or idea to donate small amounts of money, often in exchange for rewards that range from acknowledgements to free products or services. The best part? These are donations and therefore, don’t have to be paid back.
However, there are good and bad parts to crowdfunding on both sides of the equation. Not every business idea is a good candidate for this platform. With crowdfunding expected to double in 2013, how does your business or idea measure up?
Crowdfunding Pros and Cons
Aside from the obvious advantage of not going into debt on your investment, crowdfunding can offer some great benefits. When you use a crowdfunding platform, you’re already receiving market exposure before you get off the ground. You can rack up quite a lot of investment capital. For donors, it’s exciting to feel like they’re helping to build a concept they believe in.
The downside is that crowdfunding is still in its infancy and therefore, not regulated. There are no guarantees for entrepreneurs and businesses, and no legal recourse for investors should your concept fail. While it sounds like free money, the fact is that you still have to offer your investors something in return — and if you don’t follow through, your credibility is shot.
Checklist: Your Crowdfunding Potential
Is your business or idea conducive to crowdfunding? What is your crowdfunding potential? Below are some questions to ask yourself:
- Is your business or concept truly unique or is there an aspect that makes you stand out? Does it make most people say, “Wow, that’s awesome!”
- Does your company or idea have strong, lasting growth potential? Is this concept more than a fad or passing trend?
- Will your business be able to sustain interest in the long run without becoming outdated?
- Is your company or idea based on concepts, wants or desires that appeal to a broad, general audience and not just a niche group?
If you answered these questions with a resounding “yes,” then you have some crowdfunding potential and crowdfunding could be a great fit for you. If you’re not there yet, your best bet is to sit back and watch the crowdfunding landscape and be alert for new or changing opportunities.
Will you be giving crowdfunding a try as a financing option for your new business?
Crowd Funding Photo via Shutterstock