Trying to create a company is like baking a cake; you need to have all the ingredients in the right proportion to make it look and taste perfect. Similarly the most important ingredient is the business world is “The funds”. Many start-up companies face the problem of availability of funds, so for these companies “CROWD FUNDING” is the best way
To flourish a small scale business in this competitive market is a great deal as there’s a jungle out there. So was the problem faced by one of my friend who wanted to start a business in the garment industry. Being a start up and cut throat competition in this industry lead to not getting any support from the investors and a long procedure of the bank. Just like any other Midget Entrepreneur neither he was familiar what actually is crowd funding?
Crowd funding is not just a concept where the crowd funds your business but it has many other aspects attached to it as well from the participants involved in this to the method of how crowd funding is done to the platforms that offer crowd funding to the most important question that why should one choose this method of funding the business. We will look closely to each aspect.
If one chooses this method of funding the business he/she have to proceed step by step.
The first step will include who all will be involved in the process and hence the participants will be
- The Entrepreneur
- Individual or group of individuals who support the idea
- The platform that brings the 2 parties together.
Next they will look up for the platforms where the option for crowd funding is available like KickStarter, Indiegogo, Lending club, Prosper, kiva.org, OurCrowd, FundersClub, AngelList, Fundrise, Crowdstreet are few of many platforms that offer crowd funding.
Next step will be the method how crowd funding will be done. It can be through
Rewards:- A business, entrepreneur or non-profit organization posts about the projects that need to be funded with a deadline. Special promotional videos can be posted in order to gain the support of the backers. Then the interested backers invest in the project and in return get the rewards to the amount of the investment they have made.
Equity:- People invest in the company in return they get Equity shares in case of the return they will get on their investment. If the project gets successful then the value of the share increases but if the project fails, the investors may end up losing the money they have invested through online services to individuals or to businesses. Peer to peer lending is unsecured personal loans with interest rates set by the lenders themselves. The lenders choose whom to lend the money.
Donation:- People have special interest in the project, without expecting anything in return. Rewards availed in this type will usually be intangible like ticket to an event, vouchers which can be redeemed at convenience etc.
Lending:- Also known as p2p lending is a practice of lending money through online services to individuals or to businesses. Peer to peer lending is unsecured personal loans with interest rates set by the lenders themselves. The lenders choose whom to lend the money.
The last step but the most important question that needs to be answered why should one this method of funding for its business.
Advantages of Crowd funding are
- It saves time and money
- Gives you access to capital
- Helps you establish a customer base
- Helps you organize a market strategy
- Gives you control over how you can reward your investors.
Just with the benefits comes the major drawbacks and they are
- It does not work for complex projects
- Often follows All-Or-Nothing approach
- Might not fund large capital requirements
Every new idea has its own pros and cons so does crowd funding by only carefully looking at these aspects one can get answers to their question that why should one choose this method of funding? Will it be suitable for their business or not?
Conclusion: Making money is art and working is art but good business is the best art. The people will invest in good business; make sure the business proves beneficial because there is only one boss “THE CROWD”.
Lokesh Sharma is Marketing Manager at QuickCompany.in a leading website registering Companies and Trademarks in India.
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