Most times, it is difficult for persons to get new capital when starting a business. This happens because many financial institutions are not willing to take the risk in an uncertain economy. If you are faced with this dilemma like many entrepreneurs today, you might want to consider crowdsourced funding. Read on to find out more about this type of funding, including all the good, bad, ugly and awesome things.
Crowdsourced funding is when a small business is able to act like a big corporation that has gone public. This basically means, in a simpler way, that the corporation sells shares to the general public. For example, a small business information technology entrepreneur can sell five thousand of the company shares for a $100 each. By doing this, they get the necessary funding to grow and move to the next step, hire additional people, and purchase more equipment in order to do better and take advantage of the new opportunities in the market.
One could say that crowdfunding is now increasingly more popular due to the ability to get involved in microfinance investments. Now, you have websites such as Kickstarter which help fund projects and small companies. The funds are utilized to create some wonderful products.
It is important to point out that crowdfunding is a totally different model for investing in a start-up. The relationship between the entrepreneur and who is paying the money is completely different. With most crowdfunding websites, the start-ups maintain full ownership of their ventures. Contributors get reward such as credit, free software or subscriptions, commemorative t-shirts and more.
Although crowdfunding will give the necessary financing, start-ups will miss out on certain things when they are funded in this way. For instance, they will miss what investors offer such as small business support, connections and advice. In the first place, you need solid connections to get backing from investors and make the most of their connections. Crowdfunding websites will take away your ability to build investor-entrepreneur relationship, which is very important to build a successful enterprise and increase economic growth.
Now then, do you think that it would make good business sense to choose the crowdsourced funding route to raise funds in this economy with current or emerging technologies? Well, this can be a good option and it has been working for some people. Of course, it would not hurt for you to have a good business plan, but then again you are giving away your ideas and describing your business model or invention to entrepreneurs and others who might only steal your concepts. This is another option for funding, you could consider it after exploring all the benefits and drawbacks.