Question

Describe interest in crowdfunding. Why is it attractive?

Discuss crowdfunding its appropriateness for business concepts( just the appropriateness of crowdfunding)

Identify ONE new resource similar to crowdfunding

Answer 1

Crowdfunding

Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals—primarily online via social media and crowdfunding platforms—and leverages their networks for greater reach and exposure.

Just like there are many different kinds of capital round raises for businesses in all stages of growth, there are a variety of crowdfunding types. Which crowdfunding method you select depends on the type of product or service you offer and your goals for growth. The 3 primary types are donation-based, rewards-based, and equity crowdfunding (this guide will focus mostly on rewards-based and equity).

Crowdfunding is essentially the opposite of the mainstream approach to business finance. Traditionally, if you want to raise capital to start a business or launch a new product, you would need to pack up your business plan, market research, and prototypes, and then shop your idea around to a limited pool or wealthy individuals or institutions. These funding sources included banks, angel investors, and venture capital firms, really limiting your options to a few key players. You can think of this fundraising approach as a funnel, with you and your pitch at the wide end and your audience of investors at the closed end. Fail to point that funnel at the right investor or firm at the right time, and that’s your time and money lost.   

Crowdfunding platforms, on the other hand, turns that funnel on-end. By giving you, the entrepreneur, a single platform to build, showcase, and share your pitch resources, this approach dramatically streamlines the traditional model. Traditionally, you’d spend months sifting through your personal network, vetting potential investors, and spending your own time and money to get in front of them. With crowdfunding, it’s much easier for you to get your opportunity in front of more interested parties and give them more ways to help grow your business, from investing thousands in exchange for equity to contributing $20 in exchange for a first-run product or other reward.

The Benefits of Crowdfunding

From tapping into a wider investor pool to enjoying more flexible fundraising options, there are a number of benefits to crowdfunding over traditional methods. Here are just a few of the many possible advantages, which we’ll cover in greater detail later in this guide:

• Reach – By using a crowdfunding platform like Fundable, you have access to thousands of accredited investors who can see, interact with, and share your fundraising campaign.

• Presentation – By creating a crowdfunding campaign, you go through the invaluable process of looking at your business from the top level—its history, traction, offerings, addressable market, value proposition, and more—and boiling it down into a polished, easily digestible package.

• PR & Marketing – From launch to close, you can share and promote your campaign through social media, email newsletters, and other online marketing tactics. As you and other media outlets cover the progress of your fundraise, you can double down by steering traffic to your website and other company resources.

• Validation of Concept – Presenting your concept or business to the masses affords an excellent opportunity to validate and refine your offering. As potential investors begin to express interest and ask questions, you’ll quickly see if there’s something missing that would make them more likely to buy in.

• Efficiency – One of the best things about online crowdfunding is its ability to centralize and streamline your fundraising efforts. By building a single, comprehensive profile to which you can funnel all your prospects and potential investors, you eliminate the need to pursue each of them individually. So instead of duplicating efforts by printing documents, compiling binders, and manually updating each one when there’s an update, you can present everything online in a much more accessible format, leaving you with more time to run your business instead of fundraising.

Following are some of the ways to raise finance

1.    Seed Investment Funds

Seed investment is one of the newer forms of raising capital for business. Many successful business honchos based out of the entrepreneur’s locations are extending small capital of up to Rs. 25 Lakhs as seed investments for start-ups. Usually, this funding is issued at the ideation stage to build the minimum viable product and validate the business idea with real paying customers.

Such start-up funding also allows large investors to gauge the potential of the entrepreneur and the business idea. One can access this source by parting away with a small minor stake in the company with the investor.

2.    Angel Investment Funds

Angels are individuals who invest a large sum of amount as compared to seed investors and usually support proven business models which have validated the idea and expect faster growth. Along with start-up funding, these investors also get on board mentoring and advice to grow more quickly and attract the next round of investment.

3.    Venture Capital

These are the set of investors who place big bets. Venture capital is a professionally managed fund and deployed in hyper-growing companies with enormous potential. A venture capitalist invests in equity and looks for harvesting within 3-5 years’ time frame. Such investors bring much more on the table that funds which include corporate governance, PR, network and senior leadership to the company.Businesses that do not have a hyper-growth do not usually excite these set of investors, and they choose to invest in companies with proven business models only. Venture capital is also the riskiest money, and thus the investors like to take a significant share of the pie in the business against their investments.