What is crowd Funding?
Crowd funding is literally asking a crowd of people to donate a defined amount of money for a specific cause or project in exchange for various rewards.
Crowd funding is an exciting way to gather finance. It works in a similar way to angel investment, except many individuals are able to pledge varying amounts to the business in exchange for equity, interest, or other more creative returns.
As an example, new products, music albums and films have been crowd funded in exchange for early releases, while restaurants have named menu items after benefactors.
Typically, however, a product or service is pitched and uptake in funding helps determine whether there is demand for it, and first releases help fine-tune it.
There are three general categories crowd funding can fall under:
Equity-based crowd funding is asking a crowd to donate to your business or project in exchange for equity.
Donation-based crowd funding is asking a crowd to donate to your project in exchange for tangible, non-monetary rewards such as an ecard, t-shirt, pre-released CD, or the finished product.
Debt-based crowd funding is asking a crowd to donate to your business or business project in exchange for financial return and/or interest at a future date.
I would recommend Donation based crowd funding simply because it is a cleaner model, and at the end of the day you still maintain ownership of the business or product and you don’t owe anyone from a financial point of view.
What are the Pro’s and Con’s of Crowd Funding?
- Crowd funding is useful for a variety of opportunities, whether fundraising for disaster-relief, creative projects, creating a saleable product, or creating a start-up.
- Crowd funding platforms allow you to market your project, generate interest, and receive funds.
- Crowd funding backers can provide useful feedback about your project.
- Once you get a solid base of support, there is no limit to the amount of projects you can fund.
- Crowd funding is not limited to certain kind of business, project or product, there is no discrimination.
- Crowd funding can be fast, efficient, and effective if done right.
- There can be little risk involved compared to other business ventures.
- The more creativity and fun you have, the more likely you’ll get funded.
- Crowd funding your project exposes your ideas to potential idea theft.
- Certain crowd funding platforms may limit the amount of funds you can receive.
- Crowd funding regulations and taxation can be difficult to work with. You may have to check with a tax consultant to make sure you stay legal regarding the regulations in your country.
The benefits far out-weigh the disadvantages, and if you have a great idea but lack the finances to get it off the ground, this is definitely a funding method you should consider.
Where Do I Start?
As with most other principles in starting a new business venture, your crowd funding campaign will require planning and a strategy.
To get you started, here is a great link on how to plan and run a crowd funding campaign.
Where do I list my campaign?
There are many platforms where you can promote your crowd funding campaign. Here are some platforms you can investigate:
South African crowd funding platforms include: www.startme.co.za www.crowdfunding.co.za
In a world where innovation is championed, the traditional funding methods of banks and business loans often does not fit the ethos of innovation, or is simply not an option for the entrepreneur or start-up business – banks will often not fund an idea – you need to have proof of a profitable business before they will look at offering you financial assistance.
In these cases, crowd funding is a definitely a method that is worth investigating to make your idea a reality.