Crowdfunding hasn’t gone mainstream yet, but at the current rate of popularity, it shouldn’t take long. Currently, businesses are “raising £1,700 per hour” through crowdfunding according to an industry survey.
When main street starts funding the majority of its business ventures via Crowdfunding, which at the current pace, won’t take long, it can be safely said that crowdfunding will change investing forever. Here’s 5 reasons why:
If you’ve ever actually gone to a bank to request a loan, you’ll know that it is a nerve wracking process, before, during and after. Crowdfunding taps into investor funds without having to actually meet anyone new, a big boon for the introvert CEO that really doesn’t want to put on a big song and dance.
Another big plus is the efficiency of communication. When a Wallstreet CEO does speak to investors, its usually on quarterly conference calls, which is very efficient as he can answer questions once and have those recorded for those who didn’t attend the call.
It’s refreshing to only have to make your pitch for funds once and then sit back and watch your hard work pay off.
2. Testing ground for ideas
If you are looking to validate the business concept or idea, sharing the business plan via crowdfunding will quickly reveal a successful plan or otherwise. I suspect some businesses even launch new concepts to crowdfunding platforms, just to have their idea scrutinised by investors.
They can always set their funding target unrealistically high and pull out of the marketplace before the funding cap is hit. It is a strange new era where business competition is so fierce, companies are even outsourcing things they should be doing!
3. Reduces exposure
Some crowdfunding loans are as little as $5, which is useful, as any defaults on projects are compensated for, by interest gains elsewhere in the crowdfunders portfolio. Investor John Rampton who’s invested in several crowd funded campaigns says “Another way that crowdfunding reduces risk is by reducing the cost of inventory.
Let’s say in the past a clothing company would have manufactured 1000 pairs of jeans but sold 700 pairs. They still had to purchase the 1000 pairs and basically just take the loss on the jeans that weren’t sold.
With crowdfunding that same company knows ahead of time on how many pairs of jeans that need to be produced. Instead of wasting money on inventory that doesn’t sell, you only sell what’s been ordered.”
4. Investor relations communication
Whether a survey monkey poll in a web conference, or a vote in a teleconference call, modern technology is revolutionising investor relations to the point of being useful for two way communication – not just business to invest comms.
Why not discuss your business goals with investors and bring democracy to the boardroom? Ultimately, your building a loyal following of investors that can be leveraged to aid in market research, boardroom meetings and even be sold to as customers themselves.
5. A Great PR tool
Crowdfunding is really hot in the media at the moment, receiving a lot of coverage, as many people still haven’t heard of it. One common theme in crowdfunding projects as a humanitarian and community service tint that aims to either feed San Diego’s poor, or create affordable back braces for disabled children.
Whether a non-profit or LLC, crowdfunding can be used by businesses to make great progress on humanitarian issues, to great PR and marketing benefit for the organization.