Over the last several years crowdfunding has become an increasingly popular option for both entrepreneurs and investors. According to Statista, In the United States alone, there are 191 crowdfunding platforms. They also discovered that the volume of global crowdfunding platforms skyrocketed from $530 million in 2009 to over $2.8 billion in 2012. When you also consider that over 95% of business plans that were received by accredited investors and VCs have been rejected – via the Huffington Post – it’s no surprise that entrepreneurs are looking elsewhere for funding.
Crowdfunding has already proven itself to be a successful alternative in acquiring or investing money. And it’s likely not going anywhere anytime soon. It will most likely continue to rapidly grow. In fact, crowdfunding is poised to become the next big investment trend. And here’s five reasons why.
Have you ever asked for money? It’s not exactly the highlight of your day. But that’s nothing compared to applying for a loan or meeting with potential investors. It’s one of the most nerve-racking experiences that entrepreneurs have to go through. But, that’s not the case with crowdfunding.
Compared to all of the paperwork and preparation needed for loans, setting a crowdfunding campaign is a breeze. Just select the right platform, put together a video and offer enticing rewards. While there’s still a need for something that’s important for the long-term, like a business plan, it’s extremely refreshing to only have to make your presentation and pitch just once.
Crowdfunding is also a great for both investors and entrepreneurs to discover each other. Instead of relying on traditional methods and investing options, crowdfunding provides a convenient and exciting way of obtaining an investment or finding a new venture to fund.
2. Validates a Concept
Having an idea is one thing. Proving that the idea can make a profit is another thing. Whether you need to convince yourself or investors that there’s money made, crowdfunding provides a great opportunity to see where the market stands. I
If you launch a successful crowdfunding campaign, it not only proves that there’s an interest in your idea, it also shows that people are willing to spend money on it. That’s a rather effective way in validating your concept.
3. Reduces Risk
Because crowdfunding validates the market, both entrepreneurs and investors don’t have to worry about taking on as much risk. Instead of dumping your savings into a business venture that doesn’t have a sustainable market, you can test the water without much of an investment. In fact, even if your campaign isn’t successful the money that was given is returned to all donors.
Investor John Rampton who’s invested in several crowd funded campaigns says “Another way that crowdfunding reduces risk is by reducing the cost of inventory. Let’s say in the past a clothing company would have manufactured 1000 pairs of jeans but sold 700 pairs. They still had to purchase the 1000 pairs and basically just take the loss on the jeans that weren’t sold. With crowdfunding that same company knows ahead of time on how many pairs of jeans that need to be produced. Instead of wasting money on inventory that doesn’t sell, you only sell what’s been ordered.”
4. Real-time Feedback
However, the most important part about regarding feedback is that it builds a community. Think about that for a second. You’re able to build a following of loyal customers before the business has even launched. And you did this by engaging them and listening to their suggestions.
5. A Great Marketing Tool
Besides introducing a product or service, a crowdfunding provides the chance to spread your brand’s message and goals to a wide audience. As you share your campaign across multiple social media channels, you’ll also spend time engaging with supporters, who will become loyal customers and advocates who will share your business with their connections.
Let’s also say that your campaign gets some traction. Publications love success stories. You have have just secured some free PR. It doesn’t matter if it’s a local news station or newspaper or leading industry blog, that sort of coverage is an excellent way to spread brand awareness and attract supporters who previously weren’t aware of your business.