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 itâs still going strong for 2013.
What is crowdfunding?
Basically, itâs getting a whole bunch of people, the âcrowd,â 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, donât 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, youâre already receiving market exposure before you get off the ground. You can rack up quite a lot of investment capital. For donors, itâs exciting to feel like theyâre 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 â" and if you donât 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, âWow, thatâs awesome!â
- 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- Will your business be able to sustain interest in the long run without becoming outdated?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 âyes,â then you have some crowdfunding potential and crowdfunding could be a great fit for you. If youâre 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