What is Crowdfunding?

Crowdfunding: Business is all around us from being able to acquire our basic requirements to making us live a lavish and enjoyable lifestyle. But creating a business can be a hassle and hectic. Requiring numerous resources from funding to marketing strategies to collecting raw materials to production to selling or providing services. Countering these all do require an adequate amount of capital and as a new entrepreneur entering the game of business, it can be quite daunting and overwhelming and might throw off the idea. This is where crowdfunding comes into play.

The basic and straightforward definition of crowdfunding is collecting and utilizing small amounts of funds through a large group of individuals to finance a new business voyage. Crowdfunding uses the concept of accessibility through various networks, be it through social media or in any form, to attract investors and entrepreneurs together with like mindsets and interests to come together and start a project together. This expands the potential to gain investors beyond a close circle of people such as friends, family, and venture capitalists.

The various questions that may arise right now can be How does Crowdfunding work? How is it done? and what may be the potential benefits and risks of it? Let’s try to get into this and understand and hopefully find an answer to the questions that we have discussed here.

Also Read: What is A Business Model? How Do You Make One?

How does Crowdfunding work?

As we had discussed in the definition of crowdfunding, it works with the concept of acquiring small amounts of capital through various individuals or groups that are ready to invest in the project. There are some restrictions and ground rules that have been set for newer investors that are not super wealthy as many businesses are prone to failure or can be a huge hit. To avoid a person with not much savings from gambling away everything in investing for a project, these rules are set up. Crowdfunding helps entrepreneurs connect to vast networks to raise as much money as possible, it has provided many opportunities for people all around the spectrum to start their business ventures. It does require a basic idea of the business and forum to attract investors.

Benefits of Crowdfunding

There are various benefits that are provided by the concept of crowdfunding. Listing out some of the most prominent ones to understand the various advantages of it.

  • It offers entrepreneurs new opportunities who need guidance and funding.
  • It offers new entrepreneurs the funding and capital required with no upfront fee.
  • Publicity through asking investors and other entrepreneurs to collaborate with each other and create a melting pot of ideas and ease.
  • Ability to gauge public opinions on your products and services as it is available for public display.
  • Creates a network of various entrepreneurs to connect with each other and share ideas with each other.
  • Great alternatives if an individual is struggling to get a bank loan for funding.

These are some of the various benefits that are provided by the concept of Crowdfunding. Now let’s try to understand the various risks that are followed by it to take things into retrospect and consider every aspect to be aware of all the dangers.

Risks or Disadvantages of Crowdfunding

Since a business can be considered a very high-risk situation, it is important to consider all the risks and disadvantages that can be caused due to it in order to avoid any risky investments and mindfully use your resources in an appropriate way, let’s discuss it.

  • Equity dissolution: Since it is technically connected to the issuance of new shares, it is highly risky that investing in it already can have a possibility of it getting dissolved.
  • High risk of Failure: As we have been discussing it countless times, it is very risky to start crowdfunding as many businesses are prone to failure and can cause damage. Hence, when taking crowdfunding into consideration it is better to start with a small scale and eventually enlarge it depending on the success of the industry.
  • Non-fluidity: Chances of you getting to back out or exit off investment are pretty low and one may have to wait several years for the investment to finally pay off.
  • Fraud: Although crowdfunding platforms ensure their best to avoid any type of fraud, some might get through the crooks and deceive you. Make sure to check the authenticity and reliability.

Conclusion – Crowdfunding

With this, we have rounded up all the basic information for the crowdfunding concept and have looked upon the various aspects and sum that crowdfunding is a great way to start a business but you do have to be careful considering all the risks. Hope this helped.