There are numerous ways to source money to start up a business and crowdfunding is has become one of the most prominent ways to do so. There are some famous platforms like Kickstarter, Go Fund Me, and more where business owners are leveraging crowdfunding for business. Crowdfunding sources are based on either equity-based or rewards-based. Let’s look into these two and how they affect the process.
According to Lantern by SoFi, “Crowdfunding offers a way for users to raise money online for their business, startup, or personal cause. Simply put, crowdfunding can be one possible alternative to small business loans from banks and credit unions (and in some cases, family members).”
Determine If You Should Choose Rewards Or Equity Crowdfunding
Rewards-based crowdfunding
This is the most common and most popular way of crowdfunding. It includes creating an account in the platform, offering some rewards and setting goals, and pushing the campaign. Some reward-based systems are all-or-nothing platforms, meaning you may not be able to access the money if you do not meet the set target.
When setting up your goals on such platforms, make sure they are achievable. To do this, you can set up two or three rounds of fundraising to ensure you meet at least a small percentage of the money you need.
You need to create a reward system that you can handle. This could include anything from creative packages, being part of the project and so much more.
After setting all these up, you need to start carrying out some social media campaigns, mainly because some people do not even know these sites exist.
When you get to your target, withdraw your money and send out the results.
Equity Funding Crowdfunding
In equity crowdfunding, the donors get a chance to own a part of the company. For this one, there is a need to find very trustworthy people because they will essentially be part of your company.
Pros & Cons of Reward-Based Crowdfunding
Pros
- Access to money
This is one of the best ways to access ‘free’ money as no one expects a stake in your company in return for the money they offer. As donations, these are just contributions from people who want to see you succeed.
- You can rollover the proceeds
If you have more than one project in the mix, you can rollover the proceeds you get, if they are in excess to start them. If your project is successful, you use it as a referral when seeking help again.
Cons
There is a lot of pressure
If you promised rewards when asking for money, you might have a whole lot of shipping to do. You also have to put in a lot of work that may not potentially pay off.
Pros and Cons of Equity Crowdfunding
Pros
- You get more than just money
You have access to mentorships and wisdom when angel investors crowdfund for your project.
- You can get money more money
Equity crowdfunding gives you access to more investors who are willing to push your project further compared to when you are getting funds from many different sources.
Cons of Equity Crowdfunding
- There is more transparency
Since you have people to be accountable to, you will need to be very transparent about how you will spend your money.
- It is expensive
Since you essentially give away some of your company, this is an expensive option.
Are There Other Funding Options Available For Small Businesses?
Yes, there are. You could try anything from bootstrapping to fundraising, taking up loans and so much more,
Crowdfunding is a great source of money for different business options. Based on this article, you can read through it and make a decision that suits you well.
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