Crowdfunding Success for your startup

Venture capital vs crowdfundingcrowdfunding Blue dollar sign

According to the World Bank, crowdfunding has surpassed venture capital in raising money for new startups. This statistic comes from a study done in 2016. As of the date of this post that was almost 3 years ago. In June of 2018 almost 1000 offerings in over 70 industries have raised nearly 120 million dollars.

This number may seem small compared to the numbers of donation based fundraising. Over 35 billion has been raised through donation based campaigns. However with the demands for large portions of control of equity to acquire venture capital, crowdfunding campaigns offer a very attractive alternative.

Equity

Both types of funding require some form of equity for ownership of a startup, even for a mature company.

While there is still a parting of the control of the business when crowdfunding a startup, the equity being given is rather modest. This is attractive simply because the control of the business mostly remains in the hands of the original owners.

The backers get a small bit of equity in exchange for their donation. This could vary in that different percentages of equity can be given based on the amount of funds given.

Venture Capital

Another main interest to consider is the fact that just being able to get venture capital is very difficult. The majority of business will never get any money. This is because venture capitalists look for businesses that have traction.

That is to say that the business needs to be making substantial revenue in order to qualify. You will have to prove to the investor that there is a need for the funds and that you will handle these funds appropriately. Almost like bank financing. These investors want to know that you know what your are doing with the business.

Less Burdensome

The upside of crowdfunding is that decisions regarding funding are spread over many investors. This makes raising funds through crowdfunding less burdensome. Not to mention the investor base that the platform brings. Also, this is a great opportunity to test the market with your idea.

Many people that invest in your company will also provide advice on everything from packaging to costs to even advertising. This information is vital to a startup. Not only is this information often cutting edge, (many of the investors will be professionals in their field) but it will be free or low cost information.

Higher Valuations

Another benefit of equity crowdfunding is that the valuations tend to be higher because of the relaxed condition of transparency. Crowdfunding brings an ease of use and a very good track record of success. The publicity alone that is gained through a high profile campaign can literally make the company successful.

Lastly, crowdfunding requires much less time and energy than venture capital. The campaign can produce instant results. This alone can be a make or break for a company competing for market positioning.

There are advantages to both scenarios. Every fundraising technique should be carefully evaluated and considered. For some startups venture capital is necessary because of the high level of contacts that are associated with these venture capitalists. In some instances, Having the right connections is a deal maker. Of course, this depends totally on the type of business.

Conclusion

Both crowdfunding and venture capital investors have benefits and drawbacks. For a new startup, crowdfunding would be the way to go. If you are already operating a seasoned business, venture capital is a great source of funding that can also be used in conjunction with crowdfunding.  For more information on crowdfunding and how to get started, check out this post:  Successful crowdfunding.  This will provide some useful information on the initial stages of crowdfunding your startup.