How to Use Crowd Funding to Finance Your Small Business

The growth of the internet has brought with it new social platforms where people can share ideas, and even raise money to start a venture. This is exactly how crowd funding came to being. Basically, entrepreneurs pitch their idea to members of a crowd funding platform and a fundraiser is done to secure the money they seek as capital. This is a social media version of traditional fundraisers.

How does it work?

Crowd funding is a simple yet innovative arrangement that helps entrepreneurs raise money to get a business off the ground without having to rely on traditional funding sources. Instead of approaching banks or venture capitalists, entrepreneurs go to crowd funding platforms online and express their idea and need for funding. Members of the platform can then contribute whatever they can to the business in exchange for something special. For instance, they may get a piece of the business, or even the opportunity to make an active contribution to the actualization of the idea.

As you can see, crowd funding is designed to be a way for entrepreneurs to source financing from the public without going through IPOs or any other complicated processes.

Why go for it?

Crowd funding is a great way of securing financing to get great business ideas off the ground. Through crowd funding, entrepreneurs can be able to get the necessary financing they need for the actualization of their idea from people who actually believe in its success. This is a major benefit, given that these investors also form a loyal group of potential customers who want to see the idea succeed. Business owners and entrepreneurs no longer have to comply with strict requirements imposed by lenders and venture capitalists.

Remember

Before you decide that crowd funding is for you or your business, it is important to consider some critical aspects. Crowd funding usually follows a time consuming process. No money is collected from investors until the necessary amount is reached. This lost time can spell doom to time sensitive ideas.

Additionally, entrepreneurs and businesses which find that the initially calculated figures do not meet the necessary amount can be sued for making false promises.

Finally, it is worth noting that although crowd funding may simplify the process of gaining access to funds, it does not come with the value offered by venture capitalists and banks in terms of support and advice.