What are the advantages of Crowdfunding?

Posted by Adam Haider on Apr 09, 2020 05:05: PM
Adam Haider

crowdfunding

According to Telegraph, small businesses and enterprises are flourishing due to the rise of the crowdfunding platforms. According to one estimate, in 2020 crowdfunding may grow up to £18 billion. Therefore, crowdfunding platforms offer exciting opportunities and advantages to startups that are looking for funding. Here, we will explore whether crowdfunding is the right choice for your business or not.

What is crowdfund

Growth of crowdfund transactions in the UK.

What is Crowdfunding?

If you’re a new startup, you would want to pitch your idea to potential investors. One way to do that is by contacting friends, family, colleagues, investors and corporations yourself. Otherwise, you could have modern technology to do that for you. Here’s how it works: it reaches out to everyone through digital marketing by pitching your idea to as many people as possible; this could be done through social media, online ads, or online communities.

Why is Crowdfunding Important?

As Jeff Lynn mentions, crowdfunding solves a profound market failure: at one end, you have many nascent entrepreneurs that have great ideas but don’t have access to capital; on the other end, you have investors who are looking for businesses to invest in but can’t find any viable options.

What are the advantages of Crowdfunding

Crowdfunding offers many advantages over traditional funding:

1.Democratizing Investment

Everyone gets a chance to become an investor and provide funding to ideas they like. It’s the people as a whole who decide which idea to fund and which not to, rather than corporations or big venture capitalists.

2.Testing for Startups

Startups can test their ideas without spending money. They can use these platforms to see the response that people give to their ideas.

3.Free PR

Once your idea floats in the market, it has the potential to become viral due to social media exposure. This provides the additional benefit of having gained free promotion. Interested parties and experts can then look at your proposal and offer you a chance for collaboration opportunities.

4.Easily Accessible

Russel Siegelman mentions that venture capital firms look for startups that can generate £80 to £241 million in income streams. On the other hand, there is no income barrier on crowdfunding platforms for small startups.

5.Rewards for investors

Campaigns on crowdfunding websites like seedrs offer early rewards to investors. Depending upon the project, they can get early access to the application, receive a copy if media is being produced, or get the chance to immerse themselves in the creative process. Also, as the project is continually updated, the investors can view the progression in real-time and be a part of the developing phase. 

What are the disadvantages of Crowdfunding

Crowdfunding does come up with its own set of potential drawbacks as well.

1.Business Model can be copied

As you’re publicly presenting all the information related to your product, your ideas can be copied and quickly replicated before you even present the final product.

2.Target amount

If the target amount is not reached, investors get their money back, and you lose your business.

3.Time

Crowdfunding campaigns take a lot of time to set up and run.

Is Crowdfunding right for you?

The answer depends upon the scope, and scale of your business. If your idea is for a small-scale business, then crowdfunding is the right option for you. However, if you’re thinking about a business that generates high-income streams, venture capital will provide better opportunities for you. Moreover, if your idea falls just in between these two, then angel investment is the best option.

Angel Investment vs Crowdfunding

There are several differences: 

1.Angel investors are individuals who have spare cash and invest in new ideas and businesses in the hopes of getting higher returns, and/or an equity position in your company. In contrast, on crowdfunding platforms, anyone can be an investor, and their investment does not give them a share in the company.

2.As angel investors gain a share of your business, they can link you with potential clients/business partners, and massively increase the scope of your networking opportunities.

3.As discussed above, on crowdfunding platforms, your idea is public; anyone can misuse your idea and copy your business model. In angel investment, your idea, and business implementation remains secure with you, and your partners.  

4.Usually, crowdfunding generates much fewer investment funds than angel investing.

 

Rewards

Equity

Raises less than £40K

Raises less than £40k-£8m

Anyone can back you.

Qualified investors only.

 

Why TrendScout is the best platform for Angel Investment?

TrendScout provides the right tools that your business needs to grow:

1.TrendScout Community

We offer excellent networking opportunities by connecting you directly with other startups and angel investors. It gives you the perfect opportunity to pitch your ideas and learn from other startups.

2.Finding the right angel investor

We help match you with the right angel investor for your particular business. It is important that your angel investor understands your business model and works hand in hand with you. This leads to better results. Through TrendScout, you will be in direct contact with your angel investor who takes in your vision and helps you achieve your business objectives.

 3.Consultancy

Our team of consultants will become an extension of your team. We will get to know you, your team, and your business offerings. This will help you gain insight into your pitching and further refine your model.

4.Raise Capital

As you become part of our TrendScout community,  you also get access to our existing angel investors community. This helps you raise capital faster compared to other funding options.

We hope that this guide has been helpful for you and has increased your understanding of the benefits of crowdfunding, its risks and finally why angel investments might be a better option for your business. If you have any more questions, feel free to reach us in the comments, or through our email.

 

Faqs

  • How effective is crowdfunding?

This depends on the type and scope of your business model. If you’re looking for a small investment and you’re not worried about intellectual property loss, then crowdfunding can be a good choice for you.

  • Can I use crowdfunding to start a business?

Yes, many people have successfully started businesses using crowdfunding.

  • What are the types of crowdfunding?

There are four main types of crowdfunding: donation-based, reward-based, debt-based and equity-based.

  • How to start a crowdfund?

To start a crowdfund, join a fundraising platform and submit your proposal with the number of funds required.

  • Can anyone do crowdfunding?

Yes, anyone can raise money through crowdfunding.

  • Why is crowdfunding advantageous to new entrepreneurs?

Crowdfunds is a great way to fund a business venture without accumulating debt or giving up equity. It also acts as a marketing tool and attracts more potential investors.

  • Do you pay back crowdfunding?

Crowdfunding is free. There is usually a commission fee of 5% of the total funds to be paid to the fundraising platform only when the fund has reached the desired amount.

  • What is an example of crowdfunding?

An entrepreneur raising funds for a new business start up through different investors is a common example of crowdfunding.

 

References

https://www.forbes.com/sites/tanyaprive/2012/10/12/top-10-benefits-of-crowdfunding-2/#1bf45ebf2c5e

https://www.fundable.com/learn/resources/guides/crowdfunding/what-is-crowdfunding

http://s3.amazonaws.com/cms.fundable.com/wp-content/uploads/2013/12/what-is-crowdfunding-chart.png

https://www.entrepreneur.com/article/307250

https://www.premierline.co.uk/knowledge-centre/what-are-the-advantages-and-disadvantages-of-crowdfunding.html

https://www.entrepreneur.com/article/228460

https://hbswk.hbs.edu/item/four-vcs-on-evaluating-opportunities

https://www.startups.com/library/expert-advice/key-crowdfunding-statistics

https://www.hottopics.ht/14505/factors-in-the-rise-of-crowdfunding/

https://www.entrepreneur.com/article/307250

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Topics: investment, unicorn, angel investors, venture capitalists