Crowdfunding 101

Crowdfunding is an alternative way of raising capital for a business, project or cause. Unlike traditional methods of financing a business venture, crowdfunding has the potential to attract a much larger number of investors. The limits of crowdfunding are seemingly endless as it utilizes social media websites—such as Facebook, Instagram, Twitter and LinkedIn—to promote a new business.  This gives new business ventures the potential to enlarge its pool of investors beyond traditional smaller circles of owners and venture capitalists, who typically have larger stakes in a business or project.

The crowdfunding process includes three actors:

  • Project initiators
  • Supporters of the project
  • The platform that connects the two parties

The Crowdfunding Platform

Crowdfunding platforms provide project initiators and supporters with an easy and organized way of interacting.  The scope of project initiators can range from entrepreneurs, business owners, nonprofit organizations, and even independent average Joes hoping to finance a project.  While there are countless crowdfunding platforms for project initiators to choose from, it is crucial to find one that is compatible with the industry and goals of the project venture. Different platforms cater to certain projects and communities, thus building communities of interest and attracting specific types of sponsors.  Help Fund a Veteran does not fund just any entrepreneurial endeavor; it provides a space for 21.9 million entrepreneurs who served in the military to gain support for their business ventures.  It also attracts people who want to support both startup businesses and our nation’s troops.

Project Initiators

In addition to potentially tapping into a larger group of investors, the use of crowdfunding platforms offers several benefits.   It gives entrepreneurs validation and confidence in their business ideas.  Crowdfunding also increases exposure by reaching a larger number of people.  By reaching a larger number of investors—typically with lower stakes than traditional project financers—crowdfunding may save entrepreneurs massive amounts of time and energy spent attracting large investors.  Users are able to personalize their campaigns to fit their specific brand and vision.  Even if the marketing processes involved in a crowdfunding project do not result directly in business funding, the use of social media platforms that goes hand in hand with crowdfunding naturally increases exposure, which is the first step in gaining future customers for any business.  Crowdfunding is also an opportunity to educate masses of people by raising awareness about a cause or problem that a business venture is aiming to solve.

Project Supporters

Crowdfunding not only helps entrepreneurial project initiators, but also benefits the supporters who give money towards a project.  In fact, often some of the most successful crowdfunding ventures are those that offer strong rewards for generous support.  Typically, supporters are given greater incentives for the more money they invest in a project.  Because different crowdfunding platforms also target communities based on certain interests, crowdfunding also gives masses of people the opportunity to support a cause that is near to their hearts.

Crowdfunding is truly a win-win situation.

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