from Small Biz Trends.com 01 May 13, enhanced by Peter/CXO Wiz4biz
Crowd-funding is one of the hottest new strategies for Entrepreneurs & small business Owners, to raise capital for their new ideas, Startups, expansion & assistance Projects. This investing style first saw widespread use in 2012, mostly through online platforms like Kickstarter, IndieGoGo & GoFundMe [#s 1, 2 & 3] and is expected to double in 2013.
What is Crowd-funding? Basically, it’s getting a whole bunch of people, the “crowd,” to believe enough in the concept of your business or idea to donate small amounts of money, often in exchange for rewards that range from acknowledgements to free products or services. The best part? These are donations and therefore, don’t have to be paid back.
However, there are good and bad parts to Crowd-funding on both sides of the equation. Not every business idea is a good candidate for this platform. With Crowd-funding expected to double in 2013, how does your business or idea measure up?
Dis- & Advantages. For the Funded, not going into Debt on your limited resources upon startup, Crowd-funding can offer other great benefits. When you use a CF platform (ie, Kickstarter), you get Market Visibility before you get off the ground, to people – who could be future customers. If you have a good idea, that a lot of people like, you can obtain significant investment capital at a crucial time. For Donors, it’s exciting to feel like they’re helping to build a concept they believe in. The Downside is that Crowd-funding is still in its infancy and therefore, not regulated. There are no guarantees for entrepreneurs & businesses, and no legal recourse for investors should your concept fail. While it sounds like “free money”, the fact is that you still have to offer your investors something in return (ie, product) — and if you don’t follow through, your credibility is shot.
SUMRY: Advantages: 1) Easy vs chasing Angels or VCs, 2) Don’t go into Debt, 3) Doesn’t take your scarce Resources, 4) Don’t give away your Equity, 5) Market Visibility for future Customers, maybe even advanced Sales, 6) Helping a cause/ product you believe in, 7) you might get more than you expect, 8 you may have to give Rewards (product) in exchange for Funding. Dis-Advantages: 1) exposes your idea to the “risk” of someone trying to Steal it, 2) it can only raise relatively small amounts of Funding vs Angels or VCs, 3) a “one-shot” boost, not a long term relationship [But, if you get going with CF, and get a good Track Record, you could raise formal Funding later.] 4) attracting highly-qualified candidates may be more difficult.
Are you ready for Crowd-funding? Is your business or idea conducive to CF? What is its potential? Below are some questions to ask yourself:
1. Is your business or concept truly unique? Is there an aspect that makes you stand out? When you tell someone about it, do most people say, “Wow, that’s awesome!”
2. Does your company or idea have strong, lasting growth potential? Is this concept more than a fad or passing trend?
3. Will your business be able to sustain interest in the long run without becoming outdated? If it does, are you willing to update it?
4. Is your company or idea based on concepts, wants or desires that appeal to a broad, general audience and not just a niche group?
If you answered most of these questions with a resounding “yes,” then you have Crowd-funding potential and CF could be a great fit for you. If you’re not there yet, your best bet is to work on developing your organization for Crowd-funding and watch the CF landscape and be alert for new or changing opportunities.
Comment: Will you be giving Crowd-funding a try as a financing option for your new business? If so, tell us how it went.