10 benefits of crowdfunding for start-ups

Every year more and more budding entrepreneurs and start-up ventures are opting to create crowdfunding campaigns to raise the money they need to get their project off the ground. To help, we’ve put together a list of top ten benefits of crowdfunding for start-ups.

A viable, attractive and sustainable alternative to traditional lending and investment channels, crowdfunding has gained in popularity in a massive way – particularly throughout the past five years.

So what are the main benefits of crowdfunding?

1. Crowdfunding offers a genuine alternative to traditional, accredited lending options for new businesses. It opens up a world of possibility for entrepreneurs to turn their ideas into reality, without having to accept money from family and friends, take on debt or give away large chunks of equity.
2. Setting up a crowdfunding campaign is much simpler than applying for other funding. The application process for bank funding and pursuing other traditional capital investment methods are laborious, time consuming and stressful for the entrepreneur. All they need to do to get started along the crowdfunding path is to get in touch with the crowdfunding platform that’s best suited to their venture, create a powerful campaign (using a video wherever possible) and decide on the best and most desirable rewards they will offer their supporters.
3. Supporters earn rewards from their pledge. The entrepreneur offers a reward or gift in return for financial support; enabling supporters to receive something attractive and desirable in return for their pledge. Plus, they get to be part of something new, exciting and potentially very successful right at the start!
4. Risk is minimised. Creating a crowdfunding campaign allows the entrepreneur to validate and evolve ideas and incorporate support and expertise of the backers, which increases the chance of success once the project is launched to market. Additionally, financial risk traditionally associated with a start-up company is minimised as the company does not begin with any debt or equity sacrifice.
5. The concept can evolve thanks to its backers. Crowdfunding is akin to a huge brainstorming session. Inviting the supporters to send in feedback, advice and ideas can be one of the most significant benefits of any crowdfunding campaign, as the entrepreneur can be inspired to improve the concept before the launch – yet again enhancing the opportunity for success.
6. Potential customers are right there. People who are willing to support a new venture believe in its long-term success, so they become early adopters. This group are integral to the future success and longevity of a new organisation as it’s highly likely they’ll become loyal customers and promote the new business to their networks.
7. The campaign acts as the project’s first marketing vehicle. Launching a carefully planned crowdfunding campaign is a great way to convey a project’s mission, vision and values to its target audiences without the massive marketing budget. The use of social media can generate significant engagement and huge numbers of organic web visitors, which boosts online interest once the project is launched after the fundraising target is reached.
8. The market validates the start-up before it launches. When launching a new business venture which has been funded through traditional channels, it is tough to ensure market validation in advance. Crowdfunding has turned this on its head, with backers offering their support as belief in the concept. This would prove very useful in the event of future investment after the project has launched, as the market validation offered by the crowdfunding campaign would indicate to any potential investor that the project has earned the trust of its target audiences.
9. A successful campaign could generate free publicity. A strong campaign which gains momentum and support – especially through social media – could very well attract media attention which could lead to massive exposure, faster success after the venture is launched and potential future investment.
10. It’s totally free! Many crowdfunding platforms have an all-or-nothing policy whereby the entrepreneur must reach at least 100% of the project’s target before they receive the funding. If the target is not reached, the money is returned to each person who made a pledge, and there is no penalty or fee to pay. Once the target is reached, typically the crowdfunding platform will receive around 5% of the total amount raised.
11. The crowdfunding industry began as a social experiment, and has enabled many thousands of people to transform their concepts into successful business ventures. It has become a brilliant and viable vehicle for budding entrepreneurs to attract the money and audiences they need to get off the ground and grow, and there are many benefits to opting to use crowdfunding to raise that all-important initial capital.