“Ideas becoming businesses is a journey of extreme faith that tests every strand of your endurance.”
The very first question when the idea of a start-up crops up in the mind of an aspiring entrepreneur is about funds. Yes! Banks are the first answers to that. However, this option is shattered soon after realising that banks have their own policies and procedures which may not be easy for an aspiring entrepreneur to perform. At such point, the uncertain nature of business makes even the strongest zeal dwindle and ultimately the faith in the initial idea is lost. In that account, imagine! How motivating could it be if a pool of backers invests their faith to generate a fuel called capital for the start-up engine?
The start-ups which were ever dreamt of by a ubiquitous next-door person started coming into existence by curbing the financial challenges through the crowd network and sharing economy concept built some years ago. Crowdfunding websites became online portals from where capital for a start-up came in from many individuals demonstrating faith in the start-up plans and ideas presented by other individuals. With time, grew the number of websites which serve the same purpose and encourage ideas to become successful businesses. There are many forms in which Crowdfunding could be practiced:
- Debt-Based crowdfunding: When people invest (basically lend money) in a startup with an intention to receive back the invested (loaned) amount along with interest is known as Debt-based crowdfunding, g., Crowdo, FundHere.
- Equity-based crowdfunding: This can be called an investment as people analyze the start-up and assess the scope of success and finally buy the shares of the business through initial investment to meet greater returns in future, g., FUNDNEL, SEEDERS, AngelList.
- Reward-based crowdfunding: As the name suggests, people who invest small amounts in the start-up idea get the reward or perks in return. These may be the discount on the product/service which the start-up is about to launch or priority given to the customer (investor) in any form, g. Kickstart, Indigogo, Ulule.
- Donation-based crowdfunding: People support good ideas or the idea of startup they think can be fruitful for people and society. Basically, it is encouraging and supporting something a person has a sincere belief in and such donations are selfless as the donors do not expect anything in return but get entitled to first access priority as a customer, g. Patreon, YOUCARING, Friendfund.
The statistical records demonstrated by statista, a provider of market and consumer data, show that crowdfunding volume worldwide has increased from 22.7 billion U.S dollars in 2012 to 34.4billion U.S dollars in 2015.
Crowdfunding is a facilitation boon for start-ups but only if conducted responsibly. The aspiring entrepreneur needs to choose wisely the product/service which has to be offered before starting a crowdfunding campaign. Also, the campaign should be specific enough to communicate well a) the plan of making the business a success; b) funds required and; c) the promised return. One needs to have a fair knowledge about who could be the potential investors (target market) so that the pitch is drawn accordingly, and the same segment of individuals are attracted to see the project campaign. This process needs regular involvement and follow-up to make sure that the target funds are raised within the quoted time frame.
This post was co-written by Stavros Sindakis & Nipun Dhaulta.