Articles in the Series:
- Pros and Cons of Using Own Money
- Pros and Cons of Credit Cards
- Pros and Cons of Borrowing from Family and Friends
- Pros and Cons of Bank Loans
- Pros and Cons of SBA Loans
- Pros and Cons of Angel Investors
- Pros and Cons of Venture Capital
- Pros and Cons of Crowdfunding
- Pros and Cons of Business Plan Competitions
- Pros and Cons of Supplier Credit
Pros and Cons of Crowdfunding
Crowdfunding utilizes the Internet to solicit for funding for a specific business idea. Investors can then decide which ventures they’d like to put money behind. Learn the pros and cons of using crowdfunding for your business.
Advantages of Crowdfunding
- Has a worldwide online reach, allowing you to quickly and easily connect with a big number of potential investors than other means of raising capital
- Business ideas that may not attract traditional investors can get funded
- Provides a venue where you can raise awareness for your new business – even before the business has been launched. Crowdfunding is a good way to test and validate demand for your product with pre-orders before starting the business.
- Your initial supporters/investors can help spread the word about your business and will become your early champions
- Crowdfunding minimizes the tedious fundraising process (and its associated time and cost). It is a fast way to raise capital for the business
- Investor base is diversified so the risk of investors getting control of the business in minimized
- Crowdfunding attracts a lot of media coverage, and your project may get a lot of media mileage if deemed newsworthy
- You get quick feedback from potential customers about potential marketability of your product. If your crowdfunding campaign is a success, it can give you confidence that there is a market out there for your products. If you could barely reach your goal, then you may want to go back to the drawing board or rethink how you are presenting the product.
- Crowdfunding is fast: in one month, you may be able to raise the money that you need.
- Helps (or forces) the entrepreneur to know how to leverage social media, do marketing to increase awareness about the campaign.
- There is the potential to raise significantly more money than you have initially expected and requested.
Disadvantages of Crowdfunding
- Not suitable for everyone. Some products/services are better suited for crowdfunding than others
- If you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
- It’s all or nothing: if you got your target wrong and don’t reach your desired number, any finance that has been pledged will usually be returned to the investors
- Entrepreneurs do not get the feedback from mentors, investors and successful business owners
- Your product needs to be ready by end of the campaign. If you pledged sample products to your supporters, then you have to make sure that you actually have sample products.
- If you fail in your crowdfunding campaign, your failure will be there on the Web for all to see affecting your reputation.
- Some rewards can require time and money
- How to Find an Angel Investor for Your Business
- How Angel Investors Can Benefit a Small Business
- How to Start a Business with Bad Credit
- 5 Strategies to Raise Capital for a Small Business
- 12 Tips for Getting Your Bank Loan Approved