Crowdfunding
Crowdfunding
takes place on a website platform where businesses or individuals typically
explain their project or proposal to attract loans or investment from the
public.
Explanation
can be by way of a short video presentation or maybe a Powerpoint that has been
recorded on software such as Camtasia.
This
space has evolved a lot but there are four different models at present. These
are donation-based crowdfunding; pre-payment or rewards-based crowdfunding;
loan based also known as peer-to-peer; and equity investment based.
This
mode of fund raising can be particularly useful for business chiefs who are
unable to secure finances through other means. If you've got a popular product
or idea that appeals to a wide audience, you are also likely to be able to
raise money more easily this way.
Of
course, you will have to publicise your business idea or concept though.
The
benefits of this way of doing things is that you get a good gauge of the wider
public's appetite to your business proposition. Money talks, so an influx of
investment is a sign that a business idea could work well, according to Elsa Caleb
start-up Team manager at the Federation of Small Businesses.
She
said: 'Crowdfunding is an excellent, albeit inadvertent, marketing strategy.
Businesses that have managed to raise money through crowdfunding essentially
have a large number of people backing them.
'It
is in the group of investors' interest to see the business do well, meaning
that they are likely to promote the company to friends and family.'
The
first potential drawback of crowdfunding, however, is if you have a complex
business idea. A lay-person is unlikely to be able to identify the
opportunities behind credible but elaborate business ideas. Also they may not
be willing to sift through lengthy research that affirms the credibility of a
business plan.
In
addition, if a funding campaign is just shy of its target, any finance pledged
is usually returned to the respective investors. Failed fund raises could
damage the reputation of both the entrepreneur and their business. However, Angels Den have a unique system that
allows a business to have two targets; a nominal target and a stretch target. If you reach your nominal target you get the
money and can then keep going until you get to the stretch target.
But
remember, business ideas that float on crowdfunding platforms without
intellectual property protection are in danger of being copied.
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