Finimpact

The benefits of crowdfunding include:

Access to capital for new businesses. Anyone can start a crowdfunding campaign, which can help you start your business.
Increasing awareness for companies, brands, products, services, and social problems. Crowdfunding sites let you tell your story, which can help you raise awareness for your cause.
Validation of concept and market testing. A small crowdfunding campaign can help you test an idea or market to see if it’s worth expanding into.
Raising funds quickly. If you need cash quickly, crowdfunding campaigns can be faster than traditional fundraising.
PR & Marketing opportunities. Crowdfunding sites often promote projects, giving you some extra PR and marketing support.

The disadvantages of crowdfunding include:

Time-consuming. Building a good crowdfunding campaign can take time and there’s no guarantee that yours will succeed.
Oversaturated market. There are so many crowdfunding campaigns these days that it’s easy to get lost in the shuffle.
Prone to scams. Those funding campaigns may be wary of scams and have to deal with the potential that the companies raising money might not deliver on their promises.
Requires resources for promotion. To build a successful campaign, you need to put in the effort to prompt it.
Potential for no to little gain. If you can’t draw funders, you might put effort into your campaign for no return.

I Want To Invest In Crowd Funding - What Should I Know?

If you’re thinking about investing in crowdfunding, there are a few important things to know.

Crowdfunding is generally very accessible. You can fund a campaign in minutes. Depending on the amount you invest, it can also be low risk. However, it’s important to do your due diligence on the companies you invest in to make sure they're legit.

To give yourself the best chance for success, invest in multiple campaigns and use crowdfunding as a way to diversify your portfolio rather than your main investment strategy.

Breath It looks like a mountain but once at the top, you’ll see it's a hill...

Tips For Successful Crowd Funding

If you’re using crowdfunding for your business, you can use these tips to give yourself the best chance of success.

  • Research the market before launching your campaign. Make sure you know the risks and opportunities in the market and address them in your campaign.
  • Ensure enough time, resources, and manpower. If you’re promising something to backers, such as shipping a product, make sure you have the time and resources to deliver on your promises.
  • Communicate with supporters. The more you communicate with backers, the more goodwill you earn, which can help you with future campaigns.
  • Try to get good press. Advertising your campaign can be hard. If you have a way to draw in press coverage, that can serve as free advertising to draw in more funders.
  • Support others in your industry. If you build connections with people in your target industry, they may be willing to help your campaign and you’ll naturally build some brand awareness.

Examples Of Successful Crowd Funding Campaigns

Crowdfunding has seen many success stories over the years. Some examples of good campaigns include:

  • Glowforge. This campaign raised nearly $28 million in thirty days. The funds helped the company create an advanced 3D printer for home use. Unusually, the company uses its own site to host the campaign rather than an established platform.
  • Pebble. Pebble raised more than $20 million from backers to help produce a line of smartwatches. The campaign utilized multimedia and emphasized the flexibility of the device.
  • Coolest Cooler. Entrepreneur Ryan Grepper used a campaign to raise money to produce and sell a cooler that featured accessories such as a blender, Bluetooth speaker, USB charger, and more.
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Alternatives to Crowd Funding

Crowdfunding isn’t the best choice for every business. You might want to consider alternatives if you aren’t trying to pre-sell a product or need to raise more than you can typically get from crowdfunding.

If you’re raising money for a company, consider these other options.

  • Angel investors. These investors are wealthy individuals or companies that try to invest in startups. They use a high-risk, high-reward strategy and may be willing to invest large amounts. Some angels can also assist your company with their personal brand, expertise, and connections.
  • Business loans. You might consider borrowing money to start a company, especially if it’s on the smaller side. A personal loan, a business loan from an online lender or a Small Business Administration loan can be a great way to get off the ground.

Final Word

Crowdfunding is an exciting field that gives individuals, companies, and entrepreneurs a new way to raise money. While it differs from traditional funding methods, you still need a strong pitch and a way to differentiate yourself from the thousands of other campaigns out there. To succeed, make sure you prepare before launching the campaign and put in sufficient effort.

Frequently Asked Questions (FAQ)

Do you have to pay back crowdfunding?
It depends on how you structure your crowdfunding plans. In some cases, you pre-sell products as part of crowdfunding or accept donations. In those cases, you don’t have to repay the money. Other crowdfunding plans are loans, in which case you do have to pay back the money that you raise.
Can anyone crowdfund?
Almost anyone can use crowdfunding to try to raise money for their venture. Many popular
crowdfunding sites only require that you be at least 18, live in the US as a permanent resident or citizen, and have a bank account.

On the funding side, anyone who can make online payments can fund projects.
Which crowdfunding platform is best?
Each platform is designed for different situations, so it will depend on your goals. For example,
Kickstarter is popular for crowdfunding plans that involve pre-selling a product. GoFundMe is used by many people who want to crowdfund without offering a product in return. Patreon is popular among content creators who want ongoing funding.
Can you crowdfund things other than a business?
Yes, some people choose to use crowdfunding for purposes other than starting a business, such as covering medical expenses.

About the Authors

TJ Porter

Written by: TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

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Kal Salem

Reviewed by: Kal Salem

CPA, PMP and Finance Consultant

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA Services LLC.

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Somer G. Anderson, Ph.D.

Fact checked by: Somer G. Anderson Ph.D., CPA

Accounting and Finance Professor

Somer G. Anderson has been working in the Accounting and Finance industries for over 20 years as a financial statement auditor, a finance manager in a large healthcare organization, and a Finance and Accounting professor at Maryville University.

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