Crowdfunding Benefits And Risks For Your StartUp Business

May 9, 2014 7:08 pm12 commentsViews: 336

By : Evelyn Golston

Image for a-countingbiz.comCrowdfunding is raising funds collectively from individuals who network and then pool their money. They usually network via the internet in support of efforts that are initiated by other people or business organizations. Crowdfunding is only successful when supported by an organization which serves as the platform that connects together the project initiator and the crowd to fund a worthwhile project.

Benefits …

Business entrepreneurs who cannot raise money by other means have found crowdfunding to be very useful in financing their efforts. Ideas that do not fit the usual pattern that is required by the conventional business financiers, such as banks, are easily supported by crowdfunding. Another advantage of crowdfunding is that the crowd generates advice that is very useful to the entrepreneur. This advice is called crowd wisdom.

Crowdfunding not only secures the initial funds for starting your business, it also gets evidence of backing from the crowd, which may also be the customers that you will be targeting. The level of support you get to start your business is likely to be the level at which customers will also like the product or service you offer. The people financing you on the crowdfunding platform will also spread word about your business to their friends and family. This empowers you with a social network marketing team that you never hired.

Overfunding …

In crowdfunding, there is a high possibility for a business to be overfunded. This is where your venture generates so much support that the money raised is more than what you crowdfunding1actually need to start the business. Starting a business with adequate venture capital, even when it becomes overfunded, is good for the entrepreneur.  If your business has extra money from crowdfunding that are immediately available, the extra fund will help to resolve any unexpected issues that may arise.

When your business is funded by crowdfunding, decision-making remains under your control and not shared with crowd investors.  This is unlikely to happen when the entrepreneur is forced to partner with someone else or with a financing institution.

Related Risks …

The risks that come with crowdfunding are limited though they may cause damage to the entrepreneur and the future ventures he may want to engage in. As an entrepreneur, you will need to assess these risks and find ways of managing and minimizing them. Should you decide to go ahead and engage in crowdfunding for your business, consider that your public reputation maybe affected in case you fail to meet the campaign goals or generate adequate interest to your venture.

There is also the risk of having your idea stolen from you. This risk increases if the idea is a digital concept. It is possible for intellectual property to be plagiarized by people on the crowdfunding platform. Many entrepreneurs who use crowdfunding limit this risk by providing minimum details about their business on a chosen platform that are just adequate to get people to finance them.

Some regular network donors can easily get exhausted and lose their capacity to fund new ventures. Since crowdfunding has no regulatory framework, other crowd investors develop a public fear of abuse and mistrust for scams.

The final risk is that your business may not be accepted by crowdfunding if you have not registered it and filed it with an appropriate authority. In some countries, raising funds for a venture remains illegal until you file with a securities commission. Thus, entrepreneurs must learn how to manage these risks to be able to utilize crowdfunding successfully. When used and managed properly, crowdfunding presents an avenue for you to raise funds for your startup business.


This article was written by Evelyn Golston.  Evelyn is a freelance writer at Essay Jedi in the business niche. Her articles have appeared in various newspapers and journals such as the New York Times and The Guardian.



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