The Popularity of Crowd Funding

Crowdfunding is nothing new.  Kickstarter, Indiegogo and Patreon are a few platforms that Charitable Organizations, musicians, artists and small businesses have been using for a number of years to get financial support for their projects. These donation-based crowdfunding platforms allow anyone with a good idea or cause to solicit funding. A number of different models of crowdfunding have developed that offer businesses the opportunity to raise funds outside the traditional avenues of banks and venture capitalists.

Donation Based

Donation-based crowdfunding platforms such as Kickstarter are also used to fund business projects and products. Money is pledged in return for gifts, prizes or rewards, often connected to the project or product being funded. In order to benefit from this model, the business proposition should be modest, with low fixed expenses and low marginal costs. The benefit to business is that there is no ongoing payback to the investors in terms of interest or equity-ownership. Hand Stylus, a stylus for touchscreens, was successfully funded on Kickstarter. The company, which raised more than $300,000, offered a custom laser-engraved stylus to each $30 supporter.

What Makes Crowdfunding Unique?

Each model has its pros and cons, mainly because each is aimed at a different type of business. However, all models of crowdfunding have a number of things in common, which allows them to offer unique benefits, especially to small businesses and projects.

Implementation costs:

• Crowdfunding platforms make it extremely easy to set up and manage a campaign.
• The costs of raising money are much less than an IPO or a bank loan.
• A new business can get funding very early in the start-up phase without having to involve venture capitalists.

Attracting investors or contributors:

• By using a crowdfunding platform, a business can cast a very wide net for potential supporters.
• The platforms allow a business to interact with these supporters in new and innovative ways.
• The supporters can become the customer base and can spread the word about the project, bringing in more business and more supporters.
• Crowdfunding can attract funding for projects that may not appeal to traditional investors because they are too small or are viewed as too risky.

For any crowdfunding model to succeed in the long term, investors and contributors must have faith that their money is being used for the purpose for which it was raised. Each platform has checks and balances in place to protect donors and investors, so carefully investigate the ones you are considering funding.