How can crowdfunding help businesses?

Crowdfunding is widely described as a group of people donating, lending or investing towards a cause via the internet.  Crowdfunding is commonly used to support charitable causes, local community and eco-technology projects.

Within the business world, many companies crowdfund in order to raise small amounts of capital from large groups of individuals and help finance a new business venture.  Start-ups in particular, can make use of the easy accessibility of big networks of people via social media channels and crowdfunding websites to promote their venture and expand their pool of investors beyond that of friends and family.

The first ever internet-based crowdfund was when fans of the British rock band Marillion underwrote an entire US tour in 1997.  They raised $60,000 and it was the fans, rather than the band, that initiated the fundraiser!

Why choose crowdfunding?

It saves time

If you are currently in the research phase of starting up your own business venture, funding your business can be quite a challenge.  This is exactly why so many small businesses turn to crowdfunding for the support they need.

Don’t be fooled, putting together a solid crowdfunding campaign will take time, but you will only need to make your pitch once in order to reach a mass of potential investors.  Choosing the right platform is crucial, we will come to that later.

It tests the waters

Not every great business idea has ‘legs’ and it’s important to find out if there is a market so it will actually make a profit!

It’s better to find out at an early stage that your idea isn’t going to cut it than after you’ve poured a ton of blood, sweat and tears into developing it.

Crowdfunding is not only raising funds, but allows you to ask your target audience to validate your concept.  You’ll soon find out if there is actually interest in your project – people won’t invest in something they can’t see a future for.

Plus, potential investors will become genuinely invested in your success and will provide insights and, hopefully, some advice for you to take on board.

It builds confidence

By gaining validation from your target audience, crowdfunding will help you feel more confident about the potential of your business idea.  Reassurance is like gold dust when venturing out on your own and if you can demonstrate a willing market for your product, you’ll also look much more desirable to other revenue sources.

On top of all of that, crowdfunding is a marketing tool in itself. It will help you spread awareness about your brand to a wider audience and will save you money on advertising, particularly in the pilot stages of development when money will likely be extremely tight.

The best crowdfunding platforms

There are many platforms to choose from with new ones emerging daily.  Different platforms specialise in certain types of business or niches, so deciding on which crowdfunding platform is best suited to you and your business is important.  You need to be clear about the terms and conditions too, such as how much the commission fees are.

Business.org have selected the best crowdfunding sites around at the moment (out of the 600 currently operating worldwide), to help you find the right platform to get your start up off the ground.

If you need some practical advice about getting a business started, please give us a call; we’d love to help.

Anna Young represents Bells Accountants. For more information call 020 8468 1087.

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