Crowdfunding Basics
As far as business finance is concerned, crowdfunding is a relatively new term but certainly not a new method. Crowdfunding works with the same principle as fundraising, and it basically involves soliciting for funds, large or small, from individuals.
In recent time, crowdfunding has been made easier due to the presence of websites that help nonprofit organizations, businesses and people raise money.
Crowdfunding has become a useful tool in the hands of entrepreneurs to generate capital. Here's how it works.
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Websites like Kickstarter and Indiegogo provide means for their users to get donations in return for free products or perhaps a chance to be involved in the design of the product or service.
Lendingclub is also another crowdfunding website that permits its members to borrow from and invest in each other, thus eliminating the one factor we all love to hate, the bank. There are also royalty financing sites, a bit rare, whose major aim is to provide the link between business owners and investors where the business owners will get the loans and the investors will get a guaranteed percentage of the revenue of whatever the business is selling.
Crowdfunding as a method of generating capital has wide spread popularity in Europe and America. In Africa however, crowdfunding is relatively new but a few websites exist for the purpose. They include : VC4Africa which is the largest online community of entrepreneurs and investors. They provide entrepreneurs with free online tools, mentorship, opportunities and private deal rooms.
There is also Jumpstartafrica, another crowdfunding website which is similar to kickstarter and indiegogo. They allow people raise funds for their campaigns, and allow contributors donate to the campaigns of people . Campaign owners are allowed to offer gifts in form of tangible items or intangible services to contributors .
Crowdfunding methods are of different types depending on what you need. You can have :
Donation Crowd Funding where people invest in a project freely and expect nothing , or almost nothing, in return.
Alternatively, there is the Lend Crowd funding, and as the name implies, you have to pay back, sometimes with interest.
There is also the Equity crowd funding where investors invest in an idea for equity shares in the business or project . It's just like stock exchange, and investors benefit when the price of the shares go up.
Like most things in the world, crowdfunding has its pros and cons
Pros
Before the advent of crowdfunding, business owners were at the mercy of bank loan officers and angel investors. Crowd funding made it possible to pitch a business idea to the general public .
A successful crowd funding pitch can generate a great deal of capital and a loyal customer base who feel they have a stake in the success of the business.
Cons
Websites like kickstarter do not collect money unless the crowd funding goal is reached. Therefore, unless you have a compelling story or a captivating idea, your crowdfunding bid could amount to nothing and you will realize you have wasted valuable time that could have been spent growing the business through other means.
It is also possible to underestimate how much you actually need and you risk getting sued if you fail to deliver on the promised products or services the contributors earned a right to after their donations.
Angel investors can give invaluable advice and mentorship to new business owners. This advice is lost if the crowdfunding method for generating capital is used.
There are factors that can ensure a success crowdfunding campaign, here are a few
If you decide to give out perks in return for money, ensure that the perks are actually worth it the money collected. You can choose to include different levels of rewards for different levels of giving.
Have a network of friends and family members that can get you started and encourage others to give.
Present a business plan, include a short and concise video pitch if necessary, explaining exactly how the money will take your business to the next level .
As clearly as possible, show that you have your personal funds in the business .
Be prepared to live a large chunk of your life on the internet until the crowdfunding goal is complete.
Crowdfunding as a method of generating capital has wide spread popularity in Europe and America. In Africa however, crowdfunding is relatively new but a few websites exist for the purpose. They include : VC4Africa which is the largest online community of entrepreneurs and investors. They provide entrepreneurs with free online tools, mentorship, opportunities and private deal rooms.
There is also Jumpstartafrica, another crowdfunding website which is similar to kickstarter and indiegogo. They allow people raise funds for their campaigns, and allow contributors donate to the campaigns of people . Campaign owners are allowed to offer gifts in form of tangible items or intangible services to contributors .
Crowdfunding methods are of different types depending on what you need. You can have :
Donation Crowd Funding where people invest in a project freely and expect nothing , or almost nothing, in return.
Alternatively, there is the Lend Crowd funding, and as the name implies, you have to pay back, sometimes with interest.
There is also the Equity crowd funding where investors invest in an idea for equity shares in the business or project . It's just like stock exchange, and investors benefit when the price of the shares go up.
Like most things in the world, crowdfunding has its pros and cons
Pros
Before the advent of crowdfunding, business owners were at the mercy of bank loan officers and angel investors. Crowd funding made it possible to pitch a business idea to the general public .
A successful crowd funding pitch can generate a great deal of capital and a loyal customer base who feel they have a stake in the success of the business.
Cons
Websites like kickstarter do not collect money unless the crowd funding goal is reached. Therefore, unless you have a compelling story or a captivating idea, your crowdfunding bid could amount to nothing and you will realize you have wasted valuable time that could have been spent growing the business through other means.
It is also possible to underestimate how much you actually need and you risk getting sued if you fail to deliver on the promised products or services the contributors earned a right to after their donations.
Angel investors can give invaluable advice and mentorship to new business owners. This advice is lost if the crowdfunding method for generating capital is used.
There are factors that can ensure a success crowdfunding campaign, here are a few
If you decide to give out perks in return for money, ensure that the perks are actually worth it the money collected. You can choose to include different levels of rewards for different levels of giving.
Have a network of friends and family members that can get you started and encourage others to give.
Present a business plan, include a short and concise video pitch if necessary, explaining exactly how the money will take your business to the next level .
As clearly as possible, show that you have your personal funds in the business .
Be prepared to live a large chunk of your life on the internet until the crowdfunding goal is complete.
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