6 Good Things Crowdfunding Is Doing for Startups
Your funding struggles could soon become obsolete, regardless of your lack of connections, networks or angels in your corner to get your startup off the ground. According to Massolution’s Crowdfunding Industry Report, crowdfunding is posed to surpass venture capital funding by the end of 2016. As of 2015, global crowdfunding already had reached $34.4 billion.
Related: The Basics of Crowdfunding
That’s good news for anyone looking to take a company to the next level quickly, and without the tedious process of nailing down traditional funding. But what kind of impact could crowdfunding really have on your company?
Here’s a look at the good ways crowdfunding is affecting the future of startups, and how to succeed at snagging your funding.
1. It's prompted lightning-fast startup funding.
Getting angel funding is a difficult, time-consuming process that can take months to secure and finalize. It’s not uncommon to receive an initial investment of about $25,000, depending on your business and the angel investors involved. That probably won't get you too far when it comes to building and scaling a business from scratch, though.
Securing a business loan can be equally daunting, with applicants frequently facing high interest rates and plenty of rejections.
Now, let’s take a look at crowdfunding. Your company could raise a few thousand -- or a few million -- in a matter of weeks.
According to Indiegogo, the average length of a crowdfunding campaign is between 30 and 39 days long. And while it's not the norm for businesses to raise millions on platforms like Kickstarter and Indiegogo, it's still possible. Take a look at Pebble Time. The smartwatch maker raised $20,338,986 and reached a staggering 4,068 percent of its goal. Whether that’s an anomaly or not, those kinds of figures don’t come from traditional funding.
2. It's disrupted lending.
New technologies and processes can disrupt long-standing industries, but funding hasn’t really been part of that disruption. Crowdfunding took the startup world by storm as it connected everyday people with companies trying to bring a product or service to market.
That concept has since evolved. Today, the lending industry is in a process of disruption, as sites like Lending Club offer alternative options for people looking to fund everything from student loans to personal projects.
Other industries are also changing as a direct result of crowdfunding. Realty Mogul crowdfunds commercial real estate investments, an industry that hasn’t really changed much over the last several decades. Whereas traditional commercial real estate investments require hundreds of thousands or millions, Realty Mogul requires as little as $5,000 to get started.
3. It offers instant feedback.
Entrepreneurs often get carried away with their business ideas and sink money into equipment, beta testing and expensive prototypes before they truly understand the market demand.
Crowdfunding offers an opportunity to find out exactly what your core audience thinks before you spend a dime. You may end up adjusting your business and creating something even better, with a stronger unique selling proposition.
Drawing up some simple sketches or putting together a design, working on compelling copy and offering your crowdfunders some great incentives like free products and shout-outs is free. Meanwhile, the feedback your audience gives you on your business and model is invaluable. You may find your business has no real traction or has some serious flaws. Your ego might take a bruising, but you’ve just saved yourself thousands of dollars and countless hours.
4. It helps you build a fan base.
Your angel investor might be rooting for your business to succeed when he or she extends funding to you, but ask yourself, who else is? You haven’t really scratched the surface on building a loyal fan base or following.
Crowdfunding can quickly streamline that process and connect you with an eager fan base ready to fund your business and spread the word. Bonus points if your business or product is something cool people really want to share, like a new music app, trendy gadget or anything people want to attach their money and names to.
5. It augments your marketing efforts.
There’s always a benefit to trying to market yourself, to secure funding via traditional routes like banks or angel investors. After all, funders want to see that you have a following and a demand in the marketplace.
Yet, there’s also a direct correlation to how much your funding increases -- and how quickly that happens -- based on how well you market your crowdfunding page. According to Fundable, social media is a critical component in crowdfunding success. For instance, your probability for success increases to 40 percent if your number of Facebook friends increases by 1,000.
6. It helps you reach a worldwide audience.
Your time and resources are limited when raising funding. With normal funding channels, it's unlikely that you'll get to pitch banks and investors from around the world to raise some serious capital for your startup.
That’s not the case with crowdfunding. According to Indiegogo, its global platform reaches 224 countries and territories around the world. You could end up with a diverse crowd of funders who can provide more data on what each region wants and how your product or service could impact different parts of the world. With the right crowdfunding campaign, your company could go global before you even go public.
In his 14-plus years as a marketer and entrepreneur, Sujan Patel has helped hundreds of companies boost online traffic and sales and strengthen their online brand reputation. Patel is the co-founder of Web Profits and Mailshake.