What is Crowdfunding? Why It Is Gaining Popularity?

April 12, 2020 Off By studyshout

If you are an entrepreneur or a business owner, you must have heard about the buzzword, “Crowdfunding.” We all know finance is the lifeblood of any business. In the absence of sufficient finance, it would be difficult to run the business.

The problem most people face when they get a great and unique business idea is the lack of capital. To solve the problem of lack of capital, business owners have found different ways of acquiring funds like business loans, bonds, etc. Some other traditional methods for acquiring business capital are friends, family, and personal savings.

The funding sources are changing over time. At present, startups and business owners have the latest option for funding their business available – Crowdfunding. Let’s dive deep into what actually is crowdfunding.

What is Crowdfunding?

As the name suggests, crowdfunding the method of sourcing finance in small amounts, from a large number of people. The amount acquired for business using crowdfunding is normally through the internet.

In traditional funding sources like bank loans, friends, family, etc., the money is acquired from a few numbers of people in a large amount, but crowdfunding is the opposite of that. Under crowdfunding, the business acquired money from a large number of people, in small amounts.

This is what makes crowdfunding great. Here you the entrepreneur does not have to find people that have a big amount of money and that are ready to invest. If you have got a great business idea, the chances are you can acquire huge money for your business. Crowdfunding is done mainly through online platforms. There are many crowdfunding platforms out there on the web. Some of the popular ones are Kickstarter, Indiegogo, Patreon, Crowdrise, and Crowdfunder.

If you are interested in crowdfunding your business, you need to choose an ideal online platform. It is important to understand the functionality, features, and rules of the crowdfunding platform before using it for funding.

Why Crowdfunding is Gaining Popularity?

Over time, the methods for acquiring business funds are changing. The advancements in technology have also made the business funding process easy through different crowdfunding platforms. Here are some reasons why crowdfunding is gaining popularity nowadays:

1. Better than traditional fundraising

One of the main reasons why most entrepreneurs or startup owners are using crowdfunding for sourcing funds is because this method is far better than traditional fundraising. Under the traditional way, you have to apply for a loan, ask from friends, relatives, etc.

The good thing about crowdfunding is if your business idea is great and if you have a proper plan, a huge number of people are ready to invest in your business.

2. Low fundraising cost

Depending on the crowdfunding platform you select, the cost will differ. But, in most of the cases, the fundraising cost you have to pay will be low. Under traditional fundraising methods like a bank loan, there would be so much of the document process and higher cots of acquiring the funds. Apart from this, it also wastes your time.

3. Low Risk

Another great thing about crowdfunding is it is a low risk for investors. In the case of traditional or old-school funding sources, the money collected in the small group of people, hence it has a high-risk factor for investors. Talking about crowdfunding, the small amount of money is collected from a large number of people, which reduces the risk. So if you have got a great business idea and strategy, the chances are the huge number of people will invest in your business. This will help you get sufficient money for your business and the risk of all the investors would be less.

4. Helps with marketing

By acquiring money through crowdfunding, the chances are your business may get great media exposure. Press and media will talk about your business in the context of the amount of funding you have collected for your business, which will help you build your business brand and marketing. This will lead to increase visibility on your product or service.

5. Not just for startup businesses

Different crowdfunding platforms are not just for startup businesses. Many existing and well-established businesses are also utilizing this platform to fund their business. This is another reason why crowdfunding is gaining popularity nowadays.

 

Modern entrepreneurs know the power of crowdfunding. Modern businesses are utilizing different crowdfunding platforms so that they can source a sufficient amount of money for their business.

So if you are a startup business, facing difficulty acquiring sufficient money, you can consider using a good crowdfunding platform like Kickstarter and Indiegogo for that.