Crowdfunding is an amazing funding option for entrepreneurs and small business owners with innovative business ideas. This process allows small business owners to gather funds for their business through multiple contractors, via different crowdfunding platforms.
Every crowdfunding platform has different requirements. However, you will need to present your business idea, request for a certain amount of funding, and then expect donations or contributions from people interested in your idea. Your donors should assist to meet your financial goal. With that, it’s essential to note that crowdfunding for small businesses comes with numerous pros and cons.
Below, we list the benefits and drawbacks of crowdfunding.
You will retain all your equity
Crowdfunding is a very unique financing tool. With this tool, your small business will not incur any debts, nor will you lose any shares of your business. Typically, crowdfunding operates as a reward system. So, what you’ll be required to do is to reward your investors in exchange for their “funding”. This reward can be anything like a simple postcard, or a model of your product.
But, in order to motivate potential investors properly, you must think of an affordable “reward”, which will also motivate them to invest in your business. So, you must note that you’ll still incur some cost, although you’ll get to keep your equity.
You get to expose your business
Most people love creative crowdfunding campaigns. Apart from receiving funding for your business, running a creative campaign, with a captivating message, you are more likely to expose your business to new and potential clients.
Crypto crowdfunding platform, Stokr will not only help to introduce your business to new clients, but they are also a good way of helping you to improve your business. Anyone who invests in your campaign is very likely to be interested in what you do as a business. Thus, they are in a better position to give feedback, which can assist you to improve your business.
Helps in creating momentum
Small businesses need momentum to succeed—and that’s what you can get from crowdfunding. This happens when one donor or investor is interested in your project or idea because another investor is interested in the same idea. If your idea or project captures the attention of many investors with the same interest, there’s a high possibility for them to invest in your business, thus providing the much-needed momentum.
Reduced downside risk
Any type of financing for small businesses comes with a potential risk. For instance, if you secure equity funding, or take a loan to fund your business, there’s a high possibility that you’ll not repay the loan—and this can have negative effects on your business.
However, that’s not the case with crowdfunding, as it has limited risks regardless of the amount that you raise to finance your small business. Besides, you’ll not need a lot of money to set up your campaign. Also, the time and resources that you put into the crowdfunding campaign are limited. However, this doesn’t mean that crowdfunding doesn’t have risks—but when you compare the risks with traditional financing methods, they are pretty low.
Someone can steal your business idea
Not unless you patent, trademark, or copyright your idea, someone can come across the campaign, and try to copy what you are creating. The worst thing that could happen is for them to make the idea better and build it faster than you.
Besides, even when you’ve protected your idea with a patent or trademark, someone might still copy it if it’s attractive. This, in turn, can lead to a lengthy and costly legal battle.
Now, once your crowdfunding campaign is recognized, you will have a lot of competitors to deal with. Generally, crowdfunding is very popular—thanks to its benefits. Besides, since it’s very accessible, there are numerous projects taking place at once in all major crowdfunding platforms. Finding a place for your business will need you to create a detailed plan to sell your idea and a creative way to differentiate your idea from your competitors.
Crowdfunding does not work for businesses
This is another major downside of crowdfunding for small businesses—it favors some businesses over others. Yes, you might create a campaign to fund certain products in the tech or fashion industry. However, creating a campaign for your painting or catering business can prove to be a challenge.
While crowdfunding is the best way to fund small businesses, most small businesses that rely on crowdfunding campaigns never achieve their set goals.
If you don’t achieve your goals, you will not get any funding
One of the most challenging things about crowdfunding campaigns is that your business will not get anything if you don’t reach your target. This means you will devote a lot of time, resources, and energy towards a crowdfunding campaign, and yet not achieve anything.
This is one of the major reasons why most crowdfunding campaigns fail. Statistics released by Big Commerce indicate that only 40% of crowdfunding campaigns achieve their goal, and this takes ages. Therefore, if you want to reach your goal within a reasonable timeline, consider looking for another financing option.