There are many advantages of raising funds through crowdfunding. You’ve probably heard about crowdfunding from a friend, social media, or you’re looking at ways to raise funds yourself. There are many different ways you can go from an idea to an actual product.
Depending on your business there are pros and cons to crowdfunding. Today, we will be looking at the advantages of raising funds through crowdfunding to see if crowdfunding is the right idea for you.
What is crowdfunding?
Crowdfunding is one of many ways to raise funds and is done by raising small amounts from many people. These people who contribute a small amount of money to a project, idea, or any crowdfunding campaign typically do it online through a crowdfunding platform.
If you’re interested in crowdfunding, then download our app to get started and to learn more!
10 reasons why you should crowdfund
1. Crowdfunding Builds a Community
Elixir has benefited tremendously from the community through crowdfunding efforts. The best way to describe the advantage of a community is to imagine if you had the support of 2,000+ people to help you spread the word about your business.
When users are interested in your project, idea, or cause they will become long term followers. Especially if your crowdfunding project provides an awesome incentive. A great way to get your community to take action after you’ve crowdfunded is to run a giveaway. The followers of your crowdfunding project will be referring friends to the giveaway. Through a giveaway, ELIX was able to generate a viral effect and drive many new members to our community.
2. Crowdfunding Lets You Control Your Business
Let’s face it, Angel Investors and Venture Capitalists can be difficult to work with. That is why crowdfunding provides a great alternative to traditional fundraising. Imagine having full control of the mission and vision of your company. Wouldn’t that be a game changer for you and your career?
Unfortunately, when large investors come into the equation, they usually receive a percentage of equity in your company. This means that they get to have a lot of influence over company strategy and brand decisions, even if they do not know as much about the company as you do or resonate with your mission statement as your ideas develop.
3. Crowdfunding Helps Validate Business Ideas
Going hand in hand with the community aspect of crowdfunding, validation is incredibly important. Validation is important because, investors want to see that you have traction. Without traction, then no one will download or use your product. Without having a user base, they may be skeptical about the long term potential of your company.
It is so much easier to make a case that your company has legs if you can show that there is already demand for your product or service. Just think about it from the investor’s perspective: if you were going to invest in a company, wouldn’t you want to know if people actually wanted it? Many business ideas fail simply because they build something people don’t want, and being able to identify whether this is the case early will tell you how large your business can get.
The second important type of validation crowdsourcing provides is social proof. When you are running a marketing campaign, people want to see that other people have validated the worth of your company. This is why every popular online newsletter has the phrase “join X number of subscribers for news and information every week”, or something along those lines.
Another helpful validation that crowdsourcing provides is news coverage. Whenever a campaign does well, major news outlets will want to know what all the buzz is about. Therefore, they are likely to interview your company and feature you in their publications. This is perhaps the best form of validation, because many people know these news outlets and they are household names.
4. Crowdfunding is Low Risk
What do you have to lose? Honestly, the worst thing that can happen is that nobody likes your idea and you don’t get any funds. So what? That shouldn’t deter you. In fact, you should see this as a benefit in and of itself, because this shows that you need to go back to the shed and refine your idea, project, or MVP.
With crowdfunding sites, Elixir included, you don’t have to pay anything front to get started. Let’s do the math: no upfront fees + quality customer feedback. This is a low risk method to raise capital while testing your idea and marketing strategies.
5. Crowdfunding Helps Build a Roadmap
Another advantage of raising funds through crowdfunding is the roadmap. A clear roadmap provides a time frame for both the pledgers and the founders of the idea on when everything should be complete. Most individuals who contribute or pledge to a project like to see a roadmap.
The community will keep pressuring you to deliver on the planned roadmap. Most roadmaps are tentative or based on a general idea, but crowdfunding will keep you accountable for the dates. The good news is that your team will be held accountable for delivering on the set date. A certain amount of pressure from the community can be helpful in producing great results.
6. Crowdfunding provides a lot of Data
We are living in the age of big data. If you want to compete against the world’s largest brands, you’re going to have to have at least some sort of database. There’s really no alternative. So crowdfunding campaigns can be a great way to gather feedback and learn more about your customers’ needs. Based on the reward level your backers choose, you can see what type of products they are interested in.
That is why we recommend making the rewards you give to customers part of your brand. For example, if your branded t-shirts are the most supported item on your page, then you have data suggesting that your customer base likes swag products. You may be able to start a swag campaign to promote your company after the crowdfunding campaign since you have that data.
Another area which data helps to inform is in advertisements. When you are doing the crowdfunding campaign, you will be promoting your campaign with different social media posts and email campaigns. Because of this, you will be able to determine which type of content your audience is engaging with the most. And since crowdfunding campaign posts usually receive a fair amount of traction, you will be able to generate more data on what your audience likes than when you are not running a crowdfunding campaign.
7. Feedback in Crowdfunding
Another important benefit of having crowdfunding is that your community is able to provide you feedback on your company’s branding, development, app and content. Instead of huddling around a table in your boardroom, your team now has thousands of mouthpieces offering you customer feedback and refining your product every step of the way.
The world is becoming more and more decentralized. Without tossing your ideas to a community for feedback, your company may never get off the ground. There are many ways you can get feedback from your community. You can launch a beta program that invites certain segments of the community onto your app or project and get helpful feedback.
In the meantime, this builds a lot of hype towards your application or project. Another method to get feedback for your crowdfunding project is to conduct anonymous surveys. Surveys are a very powerful way to capture honest and unbiased feedback.
There’s a great chance you don’t know all the members of your community, and since they don’t really know you they’re more willing to provide feedback that is critical. The more critical information you have the better you can improve the app.
A lot of users who go down the traditional route of investors usually reach out to friends and family for their initial feedback. This can be a bad idea as friends and family just tell you what you want to hear because they care about how you might feel.
Getting feedback from anonymous users is one of the best ways to build your app. The more feedback the better, and that is one thing that raising funds through crowdfunding does well.
8. Crowdfunding Builds a lot of Hype
Buzz is, arguably, the life blood of a business. Without people talking, sharing, or engaging with your brand, your business will die. This does not have to be just for B2C or B2B brands. Both brands can benefit from crowdfunding, because they can still have hype generated about their products or services.
Crowdfunding builds a lot of hype through viral-loops and a lot of social shares from individuals who contribute and share the product to friends. PR companies who pick up your project and share it to the world produces a lot of interest. There are other ways you can build hype through crowdfunding. If you have a product or service, you can give it for a large discount for those that contribute.
9. How Crowdfunding Gets Good PR
One of the greatest advantages of crowdfunding is the PR that comes with a successful story. A lot of PR agencies and writers love to feature stories that get a lot of views. These PR agencies love to target campaigns with large communities because they know that the probability of a crowdfunding creator to share it with their audience is high. Once one of these articles is shared by the creator, their community picks it up and shares it. As a result, a viral loop is created and the article blows up.
There’s many advantages to have your crowdfunding project picked up by a reputable news agency. The first is that more eyeballs see your project. When there are more people looking at your project, the chance of raising funds through crowdfunding increases.
10. Raising Funds through Crowdfunding Pre-sales
One of the advantages of raising funds through crowdfunding is that you can measure the success of your platform based on the pre-sales you receive. Every contribution from an individual counts as a pre-sale. If you successfully raise funds through crowdfunding and achieve product market fit, then private investors would be more interested in investing in your project with your interests in mind.
Pre-sales is a great way to measure how many purchases you can expect when your project goes live. Furthermore, pre-sales from crowdfunding will help your company focus on overlooked aspects of production such as manufacturing. Without the proper manufacturers, distributors, and suppliers picked out you will struggle to deliver on the demand of the market.
How crowdfunding for startups and businesses can help you achieve your goal
Crowdfunding for startups can be what your business needs to achieve their ideas. Many startups build projects based on ideas they think that are good. Just because a startup thinks they have a good idea, it doesn’t mean others would use it.
If no one uses your project, app, idea, etc then it really won’t help. This is why raising funds through crowdfunding is so beneficial. You either fail and refine your process and idea, or you get a lot of support and feedback from contributors to take your startup to the next level.
Make sure that you have enough preparation time to launch your crowdfunding campaign. We’ve seen this happen time and time again, where companies launch their crowdfunding campaign on the same day that they come up with the idea. It pays to plan out how you plan to hit each goal in detail.
All in all, crowdfunding is really a reflection of the times we are living in. People are starting to demand decentralized networks which place an emphasis on innovation and supporting the best ideas. In short, the world is becoming more of a meritocracy. That means your company is positioned in the best time in human history to crowdfund an idea. Now anybody can make a brilliant idea and turn it into something much bigger.