There are many ways for individuals and businesses to get access to money. Some ways are tough, while others are easy. For instance, I am about to build a service for payday loans for citizens in the U.S. For some people, this is quick and easy money. People struggle while they loan money, earn money or even steal money.
Criminal activities are certainly not something we recommend, but the point is that there will always one way or another to grab those hard earn cash. That doesn’t mean it will always be a good or risk-free opportunity.
If you heard about “crowdfunding” then you might know this could be a creative way to fund whatever needs to be funded. This method has got some of their attention thought media since it could be very cost-effective and products that people really feel as attractive could be a reality.
Before you just go and set up such a project, you should dive into what it really means, since there are a few things that you might like to know.
What is crowdfunding really?
Crowdfunding is an opportunity for people and organizations to raise money for a specific project or purpose. People or other organizations who might be interested in your crowdfunding project will be able to make donations or investments to it. In case they invest it means you have to offer something back. It tends to be a profit or some kind of reward. The reward can, for instance, be a special version of a particular product the company needs funds for.
To be more precise there are several forms of crowdfunding;
– Loan-based crowdfunding
– Donation-based crowdfunding
– Investment-based crowdfunding
– Reward-based crowdfunding
Potential risks
Crowdfunding is a new concept that has not been there for many years. This is not a risk-free way to finance a start-up or product.
These are some of the most important risks for investors:
– The company might go bankrupt
– Start-ups, new and small businesses might not be very lucrative the first few years, so that can potentially make a new product unsuccessful. Take nothing for granted despite it seems promising.
– When it comes to shares, don’t expect shares they are easy to sell if they are unlisted and not listed on a big stock exchange.
– Those shares are likely unlisted, so if the stock market goes away, then you might lose all your money.
Those are risks for start-ups who like to run an equity crowdfunding campaign:
– Like most campaigns and projects failures could mess up everything
– Equity dilution is another problem that can appear
– The board should not underestimate the costs since this is not a small thing to do (equity crowdfunding campaign might not be suitable for all industries)
– Crowdfunding today, at this early stage reminding me of altcoins (similar to bitcoins) since there are plenty of fraudulent crowdfunding platforms with bad, greedy intentions
You should also be aware of what laws or regulations there are in your state or country. For instance, in India, “digital equity crowdfunding platforms” are illegal while other crowdfunding forms are perfectly legal.
I found articles with potential pitfalls like this one, thanks to Google.
What are the requirements?
There are specific requirements depending on the platform.
For instance, those are a few (but not all) requirements from an Australian funding centre:
– Make sure you understand how crowdfunding with your chosen crowdfunding platform works. Before you start, check out the FAQs, project guidelines, terms and conditions and fee structure.
– Consider how big your networks are. If you have few social media followers and a short email list, it’s probably not worth setting a big target. It’s not impossible to be successful without networks in place when you start, but it sure is trickier.
– Don’t run a campaign for less than 20 days unless you have a good reason or are super confident. You need time to disseminate your marketing material.
– Be realistic: don’t overstretch your target. Crowdfund what you actually need to make the project happen. There’s every chance you could raise more than the target, but you won’t raise anything at all if you don’t reach your target in the first place.
– Get creative. The uniqueness, quirkiness and diversity of your rewards make up an important part of your project’s narrative and marketability.
You should know how to use websites, blogs and social media accounts if you really consider crowdfunding. Those things could be really powerful for your crowdfunding campaigns. My personal recommendation is to decide wisely, so you don’t throw your money away. For the right project, it can make you a lucrative business owner over a night.