Posted On: 2022-01-25 16:36:30
'Funding' is the first problem a person faces when planning a startup. Startups have to approach financial institutions and investors because there is a lack of capital for bootstrapping. One may get help from family and friends too but many times, that adds just a tiny amount of the principal amount needed. Banks tend to refuse business loans for startup founders and often ask for huge collateral. What can one do when one cannot get investors to fund their business? That is where funding from the crowd comes in, that is 'Crowdfunding.' Crowdfunding platforms can play a key role in helping startup founders make the most of their ideas. It is defined as a pooling of financial resources by a large number of individuals and organizations for a common goal.
Online crowdfunding has become an increasingly common solution to the financial crisis of founders that allows startups to reach out to a large number of potential investors at once.
How does it work?
Crowdfunding platforms work online and offline; become mediators between fundraisers (the one who starts a campaign to raise funds) and individuals or organizations. These individuals and organizations are potential donors who donate for the cause when they get to know the project and need of the funds thoroughly. Crowdfunding platforms provide an easy to use interface so that the funds can be raised for a particular cause.
Types of Crowdfunding
There are several types of crowdfunding out of which the following are the most common ones.
Donation-Based Crowdfunding: Individuals donate small amounts to meet the larger funding aim of a specific charitable project while receiving no financial or material return.
Debt Crowdfunding: Here Individuals and organizations invest in debt security issued by the company, such as a bond.
Equity Crowdfunding: Sale of a stake in a business to several investors in return for investment. The idea is similar to how common stock is bought or sold, on a stock exchange, or through venture capital. It is almost similar to traditional fundraising for startups.
Read https://filaantro.org/blog/index.php/post/types-of-crowdfunding/47 to know other types of crowdfunding.
Donation-based crowdfunding is the most preferred way of funding in India.
Crowdfunding is gaining popularity in India in recent years. Here is how crowdfunding plays an important role in making a startup venture successful.
When a startup idea is put up on a crowdfunding website the founder gets to know more about the product's scope and demand in the market. The best test environment for the brand is the crowdfunding group itself. They can help to determine the demand for the goods and understand their scope in the market.
Crowdfunding becomes an opportunity to get access to funds. Initial capital can not only be collected from investors, bank loans from friends and family but from crowdfunding as well. Crowdfunding helps as an alternative to raise the capital or can even help in raising access funds to what is collected from investors and friends. Founders may not have to give up equity or accumulate huge debts to repay for years. These access funds are going to boost the functioning of the venture for future progress.
Crowdfunding helps a founder to bind potential clients who believe in the project. This group of people believe in the story, product, or service enough to invest their money in the long-term success and longevity of the business. These potential clients will be part of the founder's growth and be the first ones to purchase the product or have access to the services rendered by the venture.
Crowdfunding helps in getting potential clients to the founders. This increases the chances of pre-selling a product or an idea. People donate on crowdfunding websites to startups when they truly appreciate the idea and trust it. These are the same customers who are interested in the product and the services provided. The founder might get this on a smaller scale yet it is free of cost!
One of the biggest hindrances faced by startups ventures is covering all the loopholes that it might face during the initial period. Here, the founder can gather all the ideas, suggestions, reviews and work on them to enhance the company. This feedback is essential for the project's final launch and results in increased chances of success.
Crowdfunding the startup is an excellent way to exhibit the goals and objectives of the business in the market. The campaign is promoted on various social media platforms, reaching a vast number of people in today's digitalized world. Crowdfunding encourages businesses to acquire thousands of organic visitors from potential donors. This tool of viral marketing helps the idea of startup reach more people as readers spread the message further to their contacts as well.
A remarkable instance of a successful business that started with crowdfunding is 'Allbirds'- a footwear and apparel company, headquartered in San Francisco, California. Tim Brown, the co-founder of Allbirds, attended business school and made leather shoes. In 2014, Brown received a research grant from the New Zealand wool industry, to contrive sneakers. He was extremely dedicated to the project but lacked the funds to start the project. Tim got an idea and started a campaign on Kickstarter (a renowned crowdfunding platform) and raised USD 119,000 in five days! After launching on Kickstarter, Brown teamed up with Joey Zwillinger-a biotech engineer and began developing their process. They officially launched Allbirds in 2016. The company claims to keep its products as eco-friendly as possible and is a certified B corporation. As of 2017, the company had 50 employees in their San Francisco headquarters, 40 employees at its Nashville warehouse and 350 contractors in a factory in South Korea. At the end of 2017, the company officially launched in Australia. In May 2020, Allbirds announced a partnership with Adidas.
Crowdfunding is a perfect way for startups to gain the capital and visibility they need to implement, expand and gain success in their projects. For thousands of startup founders, what began out as a psychological experiment years ago, crowdfunding has been verified as a viable method to support their capital's needs.
Filaantro is a trustworthy online crowdfunding platform that supports people's innovative ideas and causes that one truly believes in. Filaantro has completed more than 100 partnerships and won the trust of individuals and social enterprises within a very short span of its journey so far. Anybody looking for a user-friendly crowdfunding platform can easily create an online campaign on Filaantro which takes only a few minutes.
Author: Anjali Patel
Ready to Start a Fundraiser ?