Securing funding for your business is one of the biggest challenges facing budding entrepreneurs. For early stage, or seed business, identifying and courting potential investors can take hours of leg-work, late nights and lost weekends. And it can be a thankless task too, travelling countless miles delivering the same pitch presentations to seemingly thousands of pinstripe suits, only to be told ‘thanks, but no thanks’ maybe a dozen times before you get that coveted ‘yes!’.
No wonder then that crowdfunding is enjoying such a culture boom among small, particularly tech business looking to grow. Here’s five reasons why start-ups love to crowdfund…
It’s a convenient way to raise funds
As any entrepreneur will tell you, going cap-in-hand to potential investors requires time, effort and sleepless nights. You need to prepare yourself to be told ‘no’, many times, which means asking a lot of people before you get a ‘yes’. Yet it’s still preferable to the endless hoops of red tape necessary to apply for a business loan. Admittedly it takes time and effort to put together a great crowdfunding campaign too, but you only need to make your pitch presentation once and that can reach hundreds of investors. That’s why choosing the right crowdfunding platform is vital – get the relationship right and you’ll receive all the necessary promotional support required to make your campaign a success.
Validates your idea
According to cbiinsights.com the leading reason for start-ups to fail is a lack of a market for their product or service. For entrepreneurs, ideas tend to be plentiful. Less so, is the proof that any of the ideas can be turned into a company capable of turning a profit. It’s a commonly held belief that top entrepreneurs are ones who focus completely on the goal and let nothing get in their way of achieving it, but that could also spell failure for some. Savvy entrepreneurs should seek validation at every stage to ensure that what they’re producing is actually attractive to a market. Arguably, crowdfunding robustly tests your concept by asking the target market to validate it by putting their money where their mouths are. After all, there’s no better test of a person’s faith in a brand than by asking them to part with their cash.
You get valuable feedback
In addition to validation, you get something arguably even more valuable for your business – genuine customer and peer feedback. Market research can be expensive and variable in the quality of the data returned – after all the subjects are not paid on the sincerity of their responses. Potential investors and shareholders become genuinely invested, often both financially and emotionally, in the business, as well as typically being customers themselves. So, they have a vested interest in your success and will fall over themselves to give you feedback, insights and ideas. Even after the crowdfunding round, they are a valuable resource of research and product development, helping shape how their future services look and feel.
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It helps to validate the market potential
By validating the market, crowdfunding allows entrepreneurs and investors to feel more confident about the potential of a business idea. No matter how much you believe in your business, it’s still a nerve-racking moment when you invest your life savings into it. Any reassurance of a potential future return will go a long way towards a good night’s sleep. And if you can demonstrate a ready-made market for your product, you’ll also look that much more desirable to other revenue sources, such as angel investors and venture capitalists.
It’s a great marketing tool
Crowdfunding is a fantastic and cost-effective vehicle for spreading the word about your brand to a wider and already somewhat receptive audience. Most businesses that crowdfund are still in early stage development, meaning significant above-the-line advertising activity is out of reach of their budgets anyway. Some might not even have dedicated marketing capability in-house. Platforms like Seedrs support clients with an experienced team of marketers that help promote the campaign, and by virtue, the brand, across a variety of channels. You’ll spend time engaging with valuable supporters who may become customers as well as shareholders and brand advocates, helping to further spread your message through their friends, colleagues and associates.
The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.