Crowdfunding 101: Funding Your Startup

Crowdfunding is an atypical finance system which has emerged as the newest and highly effective financing platform for entrepreneurs looking to raise capital for their startup or small business. Crowdfunding in simpler terms is getting monetary sponsors for your new startup through funding campaigns. Most common and known way of crowdfunding is through several crowdfunding websites but it can be done in many other ways, such as simply reaching out to family, friends and colleagues.

A crowdfunding campaign has three main parties involved, You! Ofcourse, the campaign initiator, the sponsors or donators that make the monetary contributions, and the mediator, which in most cases is the crowdfunding website. With crowdfunding, you have two options for raising funds:

Reward-based crowdfunding

The popular and the more recognized of the two, in this type of crowdfunding the campaign initiator offers reward against pledging funds. You can offer many rewards and perks to the nice people funding your campaign, including offering deals on your new product, offering the first production, or simply giving them recognition as official sponsors.

Equity-based crowdfunding.

On the other hand, equity-based crowd funding is where you offer a share of your company. This one is definitely a tricky one, as most new entrepreneurs are hesitant to share their idea or have an outsider become a partner in the realization of his or her idea into a product. However, this type of crowdfunding can come with a lot of opportunities for your startup’s progress. Remember, there is a good probability that the people buying equity into your venture have a network with other investors and have experience in running or funding businesses. If they really like your idea, they may provide you their expertise to help you grow, bring in more funding and help you sell.

The key to any successful crowdfunding campaign is to build an effective pitch to attract investors, sponsors and donators. A successful crowdfunding pitch will get them excited about your venture and convince them that their money is reaching the right hands. People are drawn to vision, how good your vision is and how well you present it will affect how well you get funded.

I think, crowdfunding is the best thing that has ever happened to entrepreneurs. Simply because this can benefit startups by generating large amounts of startup funds, give you a headstart on understanding public’s interest and have you up and running in no time. No need to get high interest business loans or go from bank to bank or investor to investor pitching your idea to get them invest in you.