Crowdfunding is an innovative concept that involves persuading people and organizations to contribute small amounts of money to fund projects or businesses. You can raise hundreds, thousands or even millions of dollars, depending on how creative and viable your business proposition is. Suppose you convince thousands of people, and each of them contributes $10, $100 or $500, you will undoubtedly raise serious cash.
Within the last few years, crowdfunding has become an effective and efficient method of raising money, courtesy of the numerous websites that allow businesses, non-profit organizations, artists, app developers and musicians to reach out to potential investors.
According to reputable studies carried out in the recent past, there are thousands of crowdfunding platforms spread across the world. Every year, billions of dollars are raised through the platforms.
How does crowdfunding work?
Use of Indiegogo, Kickstarter and other similar sites is the most common form. Typically, individuals or organizations that wish to raise funds seek donations in exchange for special rewards. The rewards may be opportunities to take part in the design of services or products or get free products. Many developers who need app funding opt for this strategy.
Crowdfunding can also be used to get royalty funding or loans. For instance, LendingClub allows direct borrowing and lending among members. Getting rid of middlemen (such as banks) creates a win-win situation for both lenders and borrowers. Royalty funding is slightly different but still falls under the ambit of crowdfunding. Typically, owners of businesses are linked with investors, and the latter is assured of getting a percentage of the generated revenue.
Anyone who needs app funding can sign up to a reputable crowdfunding site and invite individuals and organizations to donate money in exchange for shares in the business. It allows investors to participate in a mini Initial Public Offering (IPO), with absolutely no obstacles that are usually placed by regulatory bodies. In the past, only accredited and high net-worth individuals and organizations were allowed to raise money from the general public, so crowdfunding has without doubt been a game changer.
Advantages of crowdfunding
It provides opportunities for start-ups and nascent businesses with little or no capital to take things to higher levels. This could be the launching of new or improved services and products. In the past, owners of businesses had very few options. Failure to convince angel investors, venture capitalists or loan officers employed by financial institutions would force entrepreneurs to re-think or even put very ambitious plans on shelves. Today, developers who need app funding do not have to plead with angel investors or bankers. Crowdfunding allows them to pitch their ideas to millions of people spread across the world.
A successful campaign can offer your business a lifeline even when it is on the verge of sinking. Additionally, investors will get the feeling that they have interests in the business, so they will become loyal customers and generally ensure that the enterprise succeeds.
What is the downside?
If you need app funding but cannot come up with a tale that sounds convincing to potential investors, then you may fail miserably. As a general rule, Kickstarter and other reputable sites only collect finances when entrepreneurs attain their respective fundraising goals. Failure to achieve these goals can result in the waste of precious time.
Entrepreneurs who meet their fundraising goals but discover that they underestimated the amount of money needed can also find themselves in serious trouble. Investors can take legal action if you fail to fulfill promises made to them, such as money in exchange for products or an ownership stake in the business.
When you opt for crowdfunding, you only get money. On the other hand, bankers and angel investors would have given you finances and valuable advice as well. Seeking money from the crowd and ignoring traditional financiers means that you’ll miss out on precious advice.
Making crowdfunding campaigns successful- how to go about it
If you wish to successfully raise app funding from the crowd, ensure that you have a reliable network of friends, colleagues and family members who are willing and able to give and can also encourage others to help.
Be prepared to spend lots of time online by, for instance, remaining active on social networking sites such as Facebook and Instagram until the campaign ends.
Make sure that the offers you promise to give in exchange for money are not only irresistible but also attainable. Also, present a great business plan, and explain why and how the money contributed will propel the business to higher levels.