Crowdfunding is a way to finance your business through donations from the public. This is often done through crowdfunding websites.
In general, publish your business idea as a campaign with a description of your project on the website. If people want to support their campaign, they can give money to achieve your goal. On some sites, you must establish a monetary goal and timeline to achieve that goal.
To encourage people to support your campaign, you can offer incentives and rewards based on the amount of the donation. These incentives and rewards can be anything, such as: for example, goods, recognition, discounts on the future purchase of the product you develop, etc.
For example, you can choose to have the donor confirm on the website of your product for each $10 donation. For each $ 20 donation, you will receive a 5% discount on the purchase of your product.
Licensed companies can also play the role of crowdfunding platforms. To provide a collective financing service, accredited public companies must apply for a financial services license to provide this service.
Benefits of crowdfunding.
The benefits of collective financing compared to other sources of funding can be:
- A customer base who believes in your product.
- The opportunity for you to interact directly with your customers, who are also your investors
- The ability to receive feedback from your customers when you develop and test your product
- Free marketing of your mouth through its sponsors.
- Despite giving to share to investors, you still own your business
- Less commitment and risk (if you do not reach your goal, you do not have to commit).
Disadvantages of crowdfunding
As with all financing options, crowdfunding has drawbacks. These may include:
- They do not guarantee that you will achieve your funding objective promptly
- The need to present your product, to encourage people to finance it.
- You must spend time interacting with your sponsors to provide updates on your product and business development.
- Reward your supporters for promoting donations.
- The need to deliver the promised product to its supporters.
- Compete with other companies that seek collective financing for their ideas and products.
Legal issues about crowdfunding.
Depending on the type of business idea for which you collect donations, you may need to register to obtain a license or comply with the law. The same can be applied to the type of rewards or incentives you want to offer your finances. This is especially the case if your business idea is a financial product, that could earn the investors monetary rewards.