Crowdfunding or how to raise money online?
Many modern projects do not always find the support of investors, even if they are truly worthwhile products. In this case, the authors have to apply for borrowed funds to the bank, which also does not guarantee the receipt of funds. An effective way to get money for a project can be crowdfunding, in other words, bringing together a large number of people to finance startups. This does not imply that investors will make a profit; all financial investments are made for the development of the project. In this case, the product creator can offer investors incentives in the form of discounts, bonus systems, and gifts.
Crowdfunding – what is it?
Depending on the options for rewarding depositors, crowdfunding can be:
- no reward;
- with a non-financial award;
- with financial benefits.
The first option is most often used in projects at the social or medical level, and is considered charitable.
The second type is considered classic. Investors receive certain non-material bonuses as a reward, the amount of which depends on the amount of funds invested in the startup.
In the latter case, the sponsors invest money in the project in order to obtain further financial benefits. This option is used less frequently, since raising money in this way requires an appropriate legislative framework, which in most cases is not available.
Benefits of crowdfunding
Raising money for a project has certain benefits for its author:
- opportunity to implement interesting and unusual projects;
- crowdfunding platforms are a great opportunity to advertise your project. Without it, investors are unlikely to find out about you;
- the invested funds do not need to be returned, it is more profitable to spend on gifts to depositors than to pay interest to the bank;
- while raising money for a project, you can communicate with the target audience, study reviews about your product, and analyze comments and suggestions;
- people who invest their money will definitely use your project in the future;
- in the event of an unsuccessful entry into the market, losses will be minimal.
Starting a normal business, the entrepreneur has to bear the costs of advertising, production, and equipment for sales. In crowdfunding, there is a great opportunity to test a new product without a large financial investment.
When making a decision to use crowdfunding, you should understand that you will need to pay a tax on all funds collected for the implementation of your project.
You will have to constantly report to investors what their money was spent on, what your plans are, etc. Not only is it emotionally difficult, but your business idea can be leaked to competitors.
In addition, it may be difficult to control incoming funds, pay rewards, etc., if there are too many investors.
But, despite the presence of some disadvantages, there are much more pluses in this direction. Crowdfunding is a great opportunity to raise money for young projects and aspiring businessmen.
When creating a new project for crowdfunding, you need to take into account some nuances. Contributors cannot participate in the project itself. You need to think carefully to attract large investors.
The main goal should be the result. Any project in crowdfunding is necessarily subject to control by investors and contributors, the author will have to report for each stage of its implementation. It is necessary to understand that if the product is a failure and does not find demand, then the invested funds will remain in it. But if the author did not want to sell the product further, then the investors ‘ money will have to be returned.
It is for these reasons that crowdfunding is rapidly gaining popularity around the world. Really interesting and promising projects get support from investors. Novice businessmen and entrepreneurs are encouraged to carefully study crowdfunding platforms, where you can find people willing to invest their money in unknown companies and projects, and authors can analyze their target audience.
If you want to invest your free money in a crowdfunding project, this will bring you some benefits as well:
- there is an opportunity to invest in the project at the stage of its creation, you will be able to use the product among the very first;
- now crowdfunding platforms offer a large selection of projects, any investor can choose an interesting direction for themselves;
- investments can be small amounts, but you don’t have to have millions to invest in crowdfunding;
- In some cases, the initial investment may pay off several times, since the product at the initial stage of its creation, as a rule, costs much less than after it appears on the market.
But not everything is so rosy, there are also some disadvantages of participating in such programs, for example, there are always risks of losing your invested money. It happens that a new project does not survive to the stage of entering the market, sometimes even to the stage of creating a product.
In addition, you need to carefully choose projects so as not to run into scammers. Some authors only pretend to plan activities, collect money, and hide. However, when working with crowdfunding, this outcome is less likely than when working directly.
You should also not assume that crowdfunding can be earned on a permanent basis, do not consider this option as a source of stable income. Many projects are closed before they start operating. It is recommended to invest only if you are investing free money that you will not be afraid to lose.
For businesses, crowdfunding is a fairly new phenomenon, as it is not the usual sponsorship or investment. There are no strict requirements or restrictions in this direction. This option is great for startups, charities, small businesses, and creative individuals.
At the same time, it should be understood that crowdfunding is not an effective means of generating profit. It allows you to open a new business without getting into debt or loans, but to receive substantial assistance almost free of charge.
In such a project of financing new or little-known products, the main role is assigned to ordinary people. Even a novice investor will be able to understand the scheme of crowdfunding, there is nothing complicated in this.
Due to the large number of advantages, this process can be an excellent alternative to conventional loans. At this stage, the level of development of crowdfunding leaves much to be desired, now there is no legislative framework and the necessary knowledge among the population, which negatively affects the prospects for the development of crowdfunding in the domestic market.
But, despite this, there is already noticeable growth in this direction, and now we can confidently say that in a few years crowdfunding will rightfully take its place in the investment market.
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