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The Pros And Cons Of Crowdfunding For Business

June 8, 2021
Bill Kimball

pros and cons of crowdfunding

Crowdfunding platforms are unique because users browse them in search of new products and ideas, and addressing that audience can amplify an entrepreneur’s message. Entrepreneurs who run successful campaigns can convert part of this audience into backers and future customers. It’s smart money.By taking angel investing online, equity crowdfunding has opened up this type of investing to more and more people.

While there are dozens of crowdfunding platforms available to you, some of the more popular platforms include Fundrise, Origin Investments, and RealtyMogul. Equity crowdfunding is a promising new way to raise capital by selling stakes in your business to individual investors. This is especially true if you execute the campaign well, you have an innovative product, strong management, and demonstrable market traction. In the past, only “high net worth” individuals were able to invest, but today, everyone can invest in early-stage startups. Equity crowdfunding has democratized startup investing by reducing the minimum investment ceiling to as little as $10. This allows the entrepreneur to target both accredited and non-accredited investors.

There is more transparency in how the project is evolving due to this communication with all stakeholders. Crowdfunding allows you to leverage many small donations to raise a larger total amount. Without crowdfunding, this type of small donation is not feasible. Instead of taking a lot of money for a few people, crowdfunding allows yo to take a little bit of money from a lot of people. It should be noted that launching crowdfunding campaigns can be fun and enjoyable. There is a lot of excitement around the launch and success of a crowdfunding campaign.

Challenges To Consider When Starting A Crowdfunding Business

Only qualified investors, which may be restricted to only Accredited Investors or non-U.S. Many investors prefer to hold shares in a company and reap the rewards further down the line when there is an exit. However, some individuals prefer not to wait that long to see a return.

Once you make the investment with crowdfunding, the development of the property will be managed by someone else entirely. However, more traditional forms of investment provide investors with the ability to manage the project. While the real estate market in one city may be healthy, it’s possible that the market in another location could experience a significant downturn.

pros and cons of crowdfunding

With crowdfunded real estate investments, you are investing with a third-party real estate developer or operator who does all that work. You are trusting that the developer or operator will do all of the required work on time and on budget. As such, you don’t need to deal with the frustration of managing the property.

Crowdfunding Pros And Cons: Which Avenue Is Best?

Once you’ve successfully raised money, you’ve got to ship whatever you’re producing. The clock is ticking and it’s no surprise that many of the top crowdfunding projects are very late in delivering rewards to donors. The results of the crowdfunding campaign show a snapshot of whether your project would be successful in the long run. But while it might look easy — and seem like a no-brainer — to launch a crowdfunding campaign, there are strong pros and cons to consider. While the JOBS Act opened up private equity investment to everyday investors, most crowdfunded real estate deals are still restricted to accredited investors.

Other options include open-source platforms and WP crowdfunding themes. These tools work well for those who are on a budget yet have strong coding skills. Adjusting open-source solutions and themes to your business needs may be challenging, so be ready to roll up your sleeves. However, there are dozens of white label cloud-based platforms out there to help you kickstart your crowdfunding business.

Illiquid Investments

Here’s a brief overview of what real estate crowdfunding is and the pros and cons to be aware of. If they have the funds to host a similar event on their own, what’s stopping them from stealing your idea? When you launch a crowdfunding campaign, anyone with an internet connection who stumbles across your content can find out what you’re planning. Imagine one of your competitors sees your campaign and learns about the wildly-creative, game-changing event you’re trying to organize for the first time. If your crowdfunding campaign falls flat, you might have second thoughts about whether you should even hold your event in the first place. We work with crowdfunding projects we believe in & help them succeed.

pros and cons of crowdfunding

See if there are crowdfunding projects that are related to yours and have been successful in the past. If you do find some successful projects, then crowdfunding is probably a good place to launch your idea. If you’re successful in raising funds, you will have to communicate with your backers at all times.

Some entrepreneurs leverage social media, email lists, and word-of-mouth marketing to drive traffic to their campaigns. Creativity and reaching the right audience are key, and this can sometimes take significant capital and planning. A second downside of Crowdfunding is that it’s not right for all types of ventures. It’s perfect if you don’t need millions of dollars in funding, and if you can use that funding to quickly create your product or service.

For example, real estate companies tend to be very sceptical when choosing a financial alternative. Even if you offer a faster and easier way to get investments, yet you seem to be less secure than a traditional bank, there is a slim chance that you will win the fight. Recently the Financial Conduct Authority has proposed the changes for regulating the loan-based crowdfunding patterns due to their complexity. In general, these changes relate to the provision of credible information about investments, adequate risks and remunerations assessment, proper governance and management promotion.

Donation-based crowdfunding is the process of sourcing financing for a project by asking a large number of contributors to donate small individual sums of money. This type of crowdfunding is suitable if you’re financing a charitable cause or supporting an individual or group in order to make an impact on a community or society. That’s why donation-based crowdfunding is popular for many non-profit organizations.

As a rule, the awesomeness of a crowdfunding platform is the number of projects it helped successfully fund. However, there are always opportunities for brand-new platforms to attract potential clients. For instance, such industries as real estate, biotechnology, healthcare, alternative energy and wearables are not so popular as social causes, IT business, music, and art.

  • In fact, recent studies show that strong mission-led businesses, driven by the desire to be a change for good, do better at attracting top talent.
  • Kiva is a nonprofit that offers business loans up to $10,000 with no interest and long repayment terms.
  • One of the pros of crowdfunding is the support of project development.
  • Once a campaign is live, they need to have the staff to handle questions from contributors, readers, and media outlets.
  • It can generate capital while leaving your client in control of their business.

Conversely, if you need millions of dollars to develop a new technology that may take years of R&D, Crowdfunding is not right for you since the return period is too long. In such a case, angel and venture capital investors are better suited for you. However, while many entrepreneurs are paranoid about their ideas being stolen, this risk doesn’t bother me at all. Because while your ideas are important, executing on them is more important. And realize that once you introduce your idea to the market, if it’s good enough, others WILL copy it. And particularly, it allows you to raise money from unaccredited investors without the myriad legal issues that often arise with these investors. Like any funding method, Crowdfunding has its pros and cons; and I want you to be fully informed with a plan for addressing each of them.

However, the lowest cost platform to raise debt crowdfunding is Kiva. Kiva is a nonprofit that offers business loans up to $10,000 with no interest and long repayment terms. Crowdfunding is available across multiple platforms with different rewards structures and specializations. It’s no wonder that business owners often have unanswered questions when doing research. We answer the most frequently asked questions about crowdfunding below. “Rewards crowdfunding may be found through platforms like Indiegogo and Kickstarter, where individuals who donate to the campaign receive a reward for their donation. Large donations, in particular, receive more personalized and thoughtful gifts.

While business owners are looking to raise money for their businesses, individual investors may be looking for opportunities to make money by investing in these businesses. Investing through Regulation Crowdfunding is generally considered quite risky, which is why it is regulated by the Securities and Exchange Commission . Equity crowdfunding is relatively new, becoming legal in 2016 through Title III of the Jumpstart Our Businesses Act. This law aims to strike a balance between making investment funding available to small businesses, while helping to protect individual investors some of whom may be unaccredited investors.