10 Advantages of Crowdfunding for Startups

10 Advantages of Crowdfunding for Startups

Advantages of Crowdfunding for Startups

Thousands of nonprofits and businesses are tapping into the advantages of crowdfunding platforms and rallying the masses around their ideas every day. It’s certainly easy to understand the appeal of crowdfunding, considering how many thousands of entrepreneurs it has helped in funding their ideas and ventures.  

But if you’re still not sure if crowdfunding is right for you, we’ll be giving you 10 advantages (and a couple of disadvantages) of crowdfunding worth thinking about. Learning about the benefits of crowdfunding might help you better understand what possibilities it holds! 

It’s Accessible

You don’t need an amazing credit score. You don’t need to beat out the competition for the attention of the few venture capitalists that may be interested in your idea/product. And you don’t need to give up equity or land yourself in a ton of debt. 

One of the biggest advantages of crowdfunding is that you will be making connections directly with the general public. You throw your idea out into the world, you offer to raise funds in exchange for either a tangible product or other relative gifts, and voila. Your business is on its way to raising solid capital. 

This is the kind of low-cost entry that could only be dreamed of years ago. No wonder it’s been gaining popularity. 

It’s a Great Alternative to the Traditional

Accessibility aside, another pro of crowdfunding is that it beats banks and ventures on many fronts. 

For one thing, the potential of finances that you could tap into are limitless. This is because you won’t be depending on one single financial institution for raising money. Taking the conventional path can be complicated, with a lot of bureaucratic red tape and regulations. 

Most banks are not willing to take the kind of risk involved with backing small and medium businesses or startups with a loan. More likely than not, you’d have to bend over backward giving into deals, terms and circumstances that place you at a disadvantage. 

One of the best benefits of crowdfunding? The terms are much more straightforward and simple. 

You can avoid the disadvantages of small business loans altogether. The signatures required, practically non-existent. It’s like gathering up a hefty collection of micro-loans from a large number of individuals so that you can finance your venture. 

It’s Less Risky 

So, we’ve established that it’s an accessible and attractive alternative. But one of the valuable advantages of crowdfunding is that it’s more convenient and carries much less financial risk. 

Why? Because, if for some reason your crowdfunding campaign flops, you don’t pay. In essence, it’s free! 

It goes without saying that starting a new business or company is demanding. Even to those with ample experience, forecasting expenses can be a herculean endeavor. In many respects, a crowdfunding campaign is a buffer that helps you to test the waters before diving headfirst into what could be a torrential marketplace. 

Test out the interest in your product or idea, experiment with different marketing campaigns, do all of this with minimal financial investments and risk. 

A great benefit of crowdfunding is that you get access to a growing number of eager backers, ready to jump on the bandwagon of a new and exciting venture and join you on your journey from concept to market, so take advantage of that! It’s like riding a bike with training wheels. 

It Helps You Gain Early Adopters

The power of early adopters cannot be stated enough, they are the ones who will propel your business into the mass market via their sense of loyalty and investment in your idea, mission and brand. 

Finding these loyal customers and advocates is not traditionally an easy process. These are the people who share your vision and believe in you enough to stake their money on your success. They are the pioneers who go the extra step of spreading your story to friends and family, promoting you on various platforms and cheering you on every step of the way. 

This is an amazing advantage to crowdfunding you can’t overlook. Your campaign is a precious occasion for you to share your vision, mission, story, purpose and goals to capture the minds and hearts of prospective brand advocates. 

It becomes an easily shared landing page for all of your key messages. Not having one is an opportunity wasted.

It Tests Your Marketability And Gives Proof of Concept 

Down the line, dealing with traditional investors will probably be inevitable. But a successful crowdfunding campaign can act as something like a portfolio to show these would-be investors. 

Generally speaking, investors need to be convinced that your venture has gained enough market validation that makes you worth the risk. Accomplishing this when you’re at the concept stage is tough. Crowdfunding helps you to establish a solid proof of concept. 

Not only will you get points in the credibility department, but you’ll be able to gain their trust. 

Not quite at that stage yet? Well, that’s perfectly fine, because, as mentioned before, your crowdfunding campaign is your test run, your experiment, your playground. You can test the marketability of your ideas with the public and understand if making the initial investment is worthwhile, even for you. 

If you don’t manage to succeed in a crowdfunding campaign, then it’s time to reassess your idea, as it could be a serious indication that your business would not succeed on a wider scale either. 

A great perk of crowdfunding? Succeed or fail, either way, you’ll be left with valuable takeaways from the experience. 

It Gives You Free Brainstorming, Consultation and Feedback

Another benefit of crowdfunding is that you can test the waters with your campaign and get valuable feedback from your backers and potential customers. Like a soundboard, you’ll get a feel for frequently asked questions, concerns and even desired features straight from your target audience, for free! 

Think of it like one big crowdsourced brainstorming session. 

If through your idea, you have set out to solve some important problem or fill in a gap, crowdfunding gives you a chance to see the exact parameters in which your customers experience that need.

The connection that you may forge with your customers is one of the best advantages of crowdfunding. It’s as valuable as it gets. Every piece of advice, each shared feedback even and perhaps most especially the complaints could launch your company into either an unexpected direction or birth new and more profitable ideas! 

Make the most out of it, because consultation isn’t cheap. You’re in for something that’s real and raw. 

It Sets the Stage for Future Momentum and Partnerships

Succeed or fail, the process of creating and following through with a crowdfunding campaign will open new doors for the future. Laying down a solid foundation for any future projects, a crowdfunding campaign can help build much-needed momentum for any kind of new business venture. 

Create enough buzz around your ideas and you will have established rapport, with your name on the tip of people’s tongues. Open up engaging discussions on your crowdfunding platform and show the world just how interesting your ideas are. 

A unique advantage of crowdfunding is that you’ll be able to gather like-minded people together around your idea.

This alone can help you build the momentum you need for a solid launch in the future. Similar to a previous point, it will be like a trampoline, launching you into a better position when facing serious investors. 

When it becomes apparent that there is a large number of people who are willing to invest in your idea, it becomes more tempting and comfortable for others to do the same. 

It’s Perfect for Pre-Sales

If we really get down to it, your crowdfunding page is a place where you can sell your concept, product or service before it’s ever hit the market. 

Test out all your sales strategies and watch people assemble. Pre-sale gives you a unique shot to get the money you need for the production of your first batch of goods ahead of time, with little to no financial risk on your part. What’s there not to love about that? 

At worst, you are able to gauge the reactions of the crowd, learn from them and make necessary adjustments. At best, you can pursue your concept to the next level, with the added benefit of much-needed finances and sales!

It’s A Free Marketing Tool That’s Great for PR

By now, I’m sure it’s obvious what a great marketing tool crowdfunding can be. On it you can present everything there is to know about yourself as an entrepreneur, your concept and your goals. Crowdfunding platforms are a great way to get the kind of exposure you need. 

Many of these platforms incorporate social media mechanisms, making your landing page all the more shareable and accessible. This inevitably will lead to more traffic to other channels including your social media pages and website. 

What’s more is these leads can be more or less organic! 

Crowdfunding poses a great excuse for you to collect contacts and build up your mailing list, giving you an opening to get into contact with your audience long after your crowdfunding campaign has lived its final days. 

Moreover, a successful crowdfunding campaign tends to garner traditional media coverage as well. It’s a great way to leave a lasting impression and raise awareness for your brand, especially if your campaign gets featured in an influential blog, podcast, or news agency. There is huge potential for a snowball effect, with popular channels tapping into their own audiences and leading them back to you, expanding your reach to places you otherwise would not have accomplished on your own. 

This means you’ll increase the chances of capturing the attention of investors down the line as well.

Control Over Decisions

Finally, this is a way for you to gain finances and advice avoiding the expense of losing control. 

Many are familiar with the woes of traditional funding, whereby capital firms or angel investors begin to dictate terms and take control over the direction of the venture. While this may well be a reasonable sacrifice, it’s one that you can totally circumvent via crowdfunding. As mentioned earlier, you will be able to tap into feedback, ideas, complaints and advice, but you are under no obligation of following through. 

In any case, you retain complete control, without having to hand over any of your rights. 

There’s a key difference here, as even though you may be pivoting and adjusting according to the reactions of your audience, you are still the one who decides which turns to make, when and how. That is a luxury that only crowdfunding can provide. 

Disadvantages of Crowdfunding

We’ve covered a bunch of advantages of crowdfunding, but with the pros are the cons and the world of crowdfunding is no different. So what are the disadvantages of crowdfunding? 

For one, while you may not be investing as much money into your crowdfunding campaign as you would taking a more traditional route, you certainly will be devoting plenty of time and effort. With that in mind, there is no guarantee that your campaign will succeed. 

There is always a risk for failure. And depending on the kind of business you are trying to promote, crowdfunding simply might not suit your needs (for example, if you are opening a pizzeria or a karaoke business).

Summing up the Pros and Cons of Crowdfunding

Let’s take a step back and readdress the question of if crowdfunding is your right next step. Is crowdfunding a good investment? 

At a glance, you’ll have an opportunity to validate your business idea, get exposure, find promising partners, investors and customers, and get the momentum you need for growth. 

You’ll be able to understand the needs of your conceivable customers, which may or may not cause major shifts in the direction you are heading. You’ll have the potential to bring your ideas to life, connect with band ambassadors and advocates, and even make some sales. You can get the finances that you need at a much lower risk. 

And while there are risks of failure, and will take a lot of time and dedication on your part, it is totally doable, even without years of experience. Simply create the appropriate goal, get some research done, choose the most relevant platform, and keep your followers engaged. 

So maybe the real question is, what is stopping you from taking advantage of this precious tool?

Written by
Angela Hassassian
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