There are basically three types of crowdfunding: reward crowdfunding, equity crowdfunding and debt crowdfunding. While the basic principles of crowdfunding in these three types of efforts remain the same, you offer different returns to the crowd. As the names suggest, equity and debt crowdfunding offer a portion of the company and repayment respectively.
What is commonly known as crowdfunding is actually reward crowdfunding, in which the business offers early access to a product or other appealing rewards to the crowd. This is the best type of crowdfunding for businesses in their early stages for a number of reasons.
Quick and relatively small
There are actually several large crowdfunding campaigns on the market today, amassing anywhere from $100,000 to a couple of millions in funds. These big campaigns, however, are the exceptions. The majority of crowdfunding campaigns found on Kickstarter and other similar platforms are seeking no more than $100,000 in funding.
On the other hand, reward crowdfunding campaigns can be done quickly and effectively. You can hit the target funding your business needs in a matter of months. Some campaigns are even over in just a few days, especially when the product or reward is highly sought after.
The fast nature of reward crowdfunding is a huge plus for early-stage businesses. You have the opportunity to gather the funds you need to turn basic concepts and ideas into products that customers can buy within a relatively short period of time. This makes the risk of other companies copying your ideas very manageable.
It’s a marketing campaign
Unlike dealing with investors, crowdfunding is more similar to a marketing campaign. You don’t have to worry about creating a long-term business plan or explaining to investors about sustainability and business risks. You just have to focus on the idea you have and how it can turn into an awesome product that customers would love.
A lot of successful crowdfunding campaigns are actually run by communications specialists or those with an online master of communication management degree. There are even programs, such as the online MCM program at the University of Southern California, that helps business owners and marketers master the communications side of the campaign.
At the end of a successful campaign, you will also gain business following. Backers will remain in touch to see how the company is advancing in the future.
The last reason why reward crowdfunding is perfect for early-stage business is the nature of this type of crowdfunding. You’re not giving away control of the company. You’re also not losing any part of the ownership. You don’t even have to repay loans, as long as you can deliver the crowdfunding promises properly.
This is a great way to generate funds early in the development stage. Since you retain control over the company, you can then use other types of crowdfunding or invite investors to join the business after the first round of products are delivered to your backers. It gives new businesses a chance to grow before having to attract serious investments.