When starting a new business, one of the first and most important questions you will have to address is just how you are going to go about finding it. While there are many options to choose from such as classic business loans or angel investors a new solution called crowdfunding has gained a lot of attention in recent years. However, a large number of people still don’t fully understand what crowdfunding is. In short, crowdfunding is a type of financing that involves raising small amounts of money from a large number of people, usually via the internet.
The biggest reason to choose to crowdfund over other traditional methods of funding is the fact that it can save you a lot of time as it’s entirely done online and the whole process is relatively straightforward. With that being said, the question of whether or not crowdfunding can still be the right solution for starting a new business still remains. So, let’s take a closer look at the four main types of crowdfunding to find out if it’s the right choice for your next big idea.
Donation-based crowdfunding
Donation-based crowdfunding is the most well-known and common type of crowdfunding out there. Essentially, donation-based crowdfunding is a way to source money for a project by asking a large number of contributors to individually donate a small amount to it. This is usually done through many different online platforms that connect donors to individual businesses. The total amount of money raised through donation-based crowdfunding each year is set to reach 1 billion dollars very soon, which means you have a very decent chance of finding donors that you need for your new business idea. However, it has to be said that attracting people to donate to your business can be tough if you don’t have something unique that makes you stand out and that people will want to see or unless you are fighting for a cause that is truly worth fighting for. This can be solved by trying to pitch your business to people in order to familiarize them with your company through email, phone calls or even letters.
Reward-based crowdfunding
On the other hand, reward-based crowdfunding is very similar to donation-based crowdfunding with a slight variation. Instead of getting nothing back for your donation you will receive a reward based on the total amount of money you donated. This is a great way to solve the issues of finding the people to actually donate to your business as they will be attracted to the potential rewards they can receive. One of the most important aspects of reward-based crowdfunding is, of course, picking the right rewards. The desirability of the reward should increase with bigger donations, so for example, for smaller donations, you can send personalized thank you notes while for bigger ones you can give out early access to the products or services you plan on offering. It’s also worth mentioning here that you don’t have to finance your entire business through reward-based crowdfunding on its own. Instead, you can mix it with other types of funding by trying out a personal loan application or looking for extra capital from an outside investor.
Debt-based crowdfunding
Another popular form of crowdfunding is debt-based crowdfunding which involves requesting support and resources from other investors in exchange for interest. In many ways, debt-based crowdfunding is quite similar to other traditional loan options with the benefit of having lower interest rates and more flexibility.
Equity-based crowdfunding
Finally, equity-based crowdfunding is a form of crowdfunding where you essentially sell securities in your company such as equity in the company, debt, revenue shares and more. This means that your donors will actually have some skin in the game which means they will want to see your company succeed and serve as brand ambassadors who will increase awareness of your business.
How to choose the best eCommerce platform for your business
The beauty of crowdfunding is that it connects your business idea to people all over the world. This means that most of the time the products and services you plan on offering will need to be sold through an eCommerce store in order for it to be available for everyone. Because of this, you should make sure you choose the right eCommerce platform for your business in order to satisfy your donors as well as potential new customers. Some of the most important things to keep in mind when choosing your platform is to understand what you are trying to sell and to find the platform that has the best features for your product as well as to make sure the platform gives you the ability to customize it to your liking while also having adequate support for different plugins and SEO.
Conclusion
To sum up, crowdfunding can definitely be the right solution for starting your new business. However, you have to remember that uniqueness is highly valued in crowdfunding so if the idea you have isn’t too original it may not attract so many people.
Autor:
I’m Willy Beamen,contributor for Bizzmarkblog with 15 years of experience from Sydney, Australia. My work is mostly focused on helping small business owners and local startups to get off the ground and expand.
