This is Part 1 of a series on the advantages and disadvantages of crowd funding your startup company.
There are several variants of crowd funding in existence now: donation crowd funding for nonprofit organizations, lending-based crowd funding where money is paid back over time, reward-based crowd funding where investor receives an item or service and equity-based crowd funding where investors purchase a portion of the stock of the company.
Regardless of the type of crowd funding involved, there are a number of advantages in this new type of funding search process:
- Access to a larger pool of potential investors.
- Online services streamline and automate the process of communicating about and receiving investment.
- You can obtain a potential initial customer base for your product or service, even before it is commercially available.
- Company owners may retain greater control over the direction of their company, i.e. no individual large investor asking for board seats.
- If initially successful, a fund-raising effort can increase in size dramatically due to the "social proof effect" of seeing others invest in the company.
- Greater visibility and publicity from a successful fundraise.
- Reduction of funding search efforts enabling company owners to focus on the business instead of fundraising.
- Limited time frame for fund-raising helps owners minimize distraction.
If you've chosen to crowd fund your company, there are a number of Do's and Don't associate with raising capital this way.
Stay tuned for the next post in this series.