Entrepreneurs face many challenges when starting a business. One of the biggest challenges they face is the ability to obtain the funding necessary to start and grow their businesses. According to Fundable.com, "Entrepreneurs create over 6 million new businesses each year in the United States, and yet only a fraction receive funding." A lack of access to funding is a problem that keeps many potential and existing entrepreneurs up at night. It is also a barrier to entry for many potential start-up businesses. If business owners cannot obtain a loan from the bank and don't have connections to investors, then they can become easily discouraged.
According to Tonya Prive of Forbes.com, "In 2012, the total number of loans and money distributed in the U.S. via the Small Business Administration has dropped as much as 20 percent!" Moreover, almost 98% of the business plans and requests for funding received by accredited investors and VC's (Venture Capitalists) are rejected. As a result, it became clear that the current business-funding environment was in need of a major disruption. Well, that disruption is called Crowdfunding. According to Wikidedia, "Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, today often performed via internet-mediated registries, but the concept can also be executed through mail-order subscriptions, benefit events, and other methods."
Crowdfunding is an alternative source of financing, which is outside of the traditional financial system. Crowdfunding involves a platform, an individual or entity in need of funding, and a community of people who are willing to collectively contribute monetary funds in exchange for recognition and reward. In 2013, over $5.1 billion was raised using crowdfunding worldwide. There are many methods of Crowdfunding. However, online crowdfunding, which consists of raising smaller amounts of money from multiple backers has become an increasingly common solution for many potential or existing small business owners because it allows startups to reach out to a large number of potential investors at one time. Crowdfunding is about persuading individuals to each give a small donation in increments of $10, $20, $50, $100, and more. The more donors an entrepreneur has, the more cash he or she has to start or grow their business.
Research has shown that there are currently more than 600 crowdfunding platforms around the world, with fundraising reaching billions of dollars annually.
Being successful in startup fundraising via crowdfunding is not as easy as it seems. There are many do's and don'ts to successful online fundraising. Following are a few tips for achieving a successful crowdfunding campaign:
-Have a solid business plan, a great marketing plan and a well-developed product or service in place before you begin your on-line campaign.
- Have a small network of family and friends who are willing to help start the campaign by giving and are willing to encourage others to give.
-Have an explanation of how the money will be used and how it will help you to start or grow your business.
-Demonstrate that you invested cash into your business prior to starting the asking others to give.
References:
(unknown). (n.d.) We Help Companies Get Crowdfunded Retrieved on 6/12/2016 from https://www.fundable.com/about
Prive, Tonya. (2012, October, 12). Top 10 Benefits of Crowdfunding. Retrieved on 6/13/2016 from http://www.forbes.com/sites/tanyaprive/2012/10/12/top-10-benefits-of-crowdfunding-2/3/#639d679e6d34
(unknown). (n.d.) Crowdfunding Retrieved on 6/12/2016 from https://en.wikipedia.org/wiki/Crowdfunding
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