Crowdfunding is open to all types of projects. Companies can resort to crowdfunding to support the launch of a product or innovative service.
What are the benefits of crowdfunding? What are the risks? What are the crowdfunding solutions available to small and medium enterprises?
What is crowdfunding?
Crowdfunding is to request funds from individuals or investors. It is an alternative to bank financing. This type of financing can be used by individuals to achieve a humanitarian project for example. It is also increasingly used by companies (including startups), to launch a new product or service. This type of financing has grown significantly over the years and there are several platforms to manage the relationship between the project owners and investors, whether individuals or professionals. The operating modes they offer may vary:
- Donation based: popular for sports or humanitarian projects.
- Reward based: Financial support in exchange for rewards related to finished product or derivative.
- Equity based: investors become stakeholders in the company.
- Lending based: The company repays the load over a period of time.
Crowdfunding: Challenges and Benefits
Crowdfunding offers an interesting alternative for financial and banking companies.
Several significant advantages:
An affordable solution for any type of project and all sectors (high-tech, fashion, sport, web).
It can be used in addition to or instead of conventional bank financing.
It helps finance the development of a prototype before starting any expensive and large scale development
It provides a portion of the funds needed to convince banks or private investors to fund the rest of the project.
Crowdfunding will also have several advantages in terms of marketing and advertising. For it to reach its objectives, the fundraiser must be accompanied by a advertising campaigns on social networks and traditional media. This allows users to learn more about the company and its projects!
Crowdfunding may present some risks:
For the project owners: Risks are very limited due to the low cost of a campaign.
For the investors: The risks will vary based on the type of crowdfunding solution adopted.
How to launch a crowdfunding campaign?
Choosing the right platform:
Some crowdfunding platforms are specialized/recommended for specific types projects. Before choosing a platform, you should check the following points:
The type projects supported
The results for similar projects
Are the financial goals being met
How does the contributors behave and what are their expectations.