What is Crowdfunding?
Crowd funding, in its most basic form, is exactly what it sounds like: funding from a crowd. In the bigger picture, however, there are several aspects to this type of funding that people should understand before engaging in it. People using this method of capital accrual will, instead of seeking one or two huge investors, seek numerous smaller investments from the public at large. This type of financing has been in use since the 17th century when individuals solicited funds from the public in order to have books printed.
Many people know about the numerous websites that currently exist which allow people to start their own crowd funding campaigns. Unfortunately, these are often quite difficult to get off of the ground unless the campaign manages to go viral. In addition, most of these websites take a percentage of the earned capital from a campaign, and as anyone who works within tight margins knows, this can sometimes be detrimental. Most serious entrepreneurs invest in forms of business coaching to learn how to do their own crowd funding without the disadvantages of online sources.
Benefits of Crowdfunding
There are a vast amount of benefits that go along with this types of funding. In fact, they're what make crowd funding websites so popular.
- Market Feedback: A successful campaign will show an individual that there is a market out there for their idea. This is beneficial even when a campaign is unsuccessful since in either scenario, successful or not, a person will know whether they have any footing in the market.
- Market Testing: People who engage in crowd funding often allow those funding them to get early access to content that they're creating. This is a great incentive to provide that will bring in more of the public, but it also will provide valuable feedback from these individuals about how something can be made better.
- Reputation Improvement: An innovative idea will often raise awareness of its creator. This in turn will boost up their reputation and give their upstart or business idea credence. This is difficult, however, with online crowd funding providers, and this is another reason why many simply use business coaching to learn the proper techniques.
Are there Drawbacks?
As with many things in life, there are some potential drawbacks when it comes to this form of capital accrual.
- Public Failure: The biggest aspect of this source of funding is access by the public. This means that everyone will see what happens with a new venture. A project that doesn't get the necessary funding will be seen as a failure, and this could affect an individuals likelihood of securing funding for other projects.
- Public Fear: This method of gaining capital is often highly unregulated. This leads people to fear that their money may be used in a way that's not advertised. The fear of scams turns a good number of people away from crowd funding.
Crowd funding is an amazing way to turn a good idea into an awe inspiring reality. Even with the economy in its current form, most people are willing to donate a little money to something that they truly believe in. This may not seem like much, but when huge sections of the public may potentially be interested in being part of a project, there's no telling how quickly a person can accelerate their company or get it up and running. Potential entrepreneurs need to know all of their funding potentials.