Our last article demonstrates that the fundraising exercise on crowdfunding could be proven to be very convenient, quick and cheap compared to the conventional way. There are also other inherent benefits you can gain from raising funds through crowdfunding by looking at the mechanism that makes it’s the suitable alternative way for businesses to get funded.
This article discusses some of the implicit benefits of leveraging crowdfunding platform as a mean of raising funds.
Crowdfunding the savior for underserved sectors
All form of crowdfunding platforms from reward to equity based has been dubbed as the most prominent and disruptive form of alternative source of funding. It seeks out to revolutionise the way how businesses look for capital on one hand, and open up venues where the crowd could participate as well as support ventures that they believe in. Ideally it the beginning of the move to democratise wealth and distribute capital towards productive use.
It is important to note the origins of crowdfunding concept and application. It was first established to cater to the underserved sectors in the economy, namely the arts and creative industry. Back in 2003, Brian Camelio launched ArtistShare to let musicians seek donations from their fans to produce digital recordings. This became a unique instrument for raising funds through the collective participation of the crowd that also have the freedom to choose where their contribution goes. Businesses and projects that usually do not fall under the radar of investment banks and private venture capitals would therefore have a more solid and effective way of raising funds.
The basic principle to this is that not only crowdfunding platform humanises the experience of investing, but also allows businesses to tap on the sentiment and emotional side in the act of investing. Not all businesses, particularly in the arts and creative sectors can promise lucrative returns (if they do, there wouldn’t be any problem in securing loans and funding). Unfortunately, this can be traced back to some structural problem faced in many developing economies; the lack of understanding and appetite to capitalise on the arts and creative sector. Crowdfunding addresses this gap by allowing ordinary citizens and fans to be genuine investors and backers for initiatives that they truly believe in.
Get a boost in traction
The presence of an online crowdfunding platform means that it can reach out to vast number of people through all sorts of digital channels. It is normally interwoven with various forms of social medias and networking platforms that we all use on a regular basis, making anything listed on the platform to be potentially viral. So what does it mean for a business to raise fund on a crowdfunding platform? Short answer : Easy marketing.
For any business that wants to raise funding, what matters most is that it has market for it’s product and service. Investors and backers would want to know this so that not only can they evaluate how successful the business will be, but more importantly the potential returns from it’s success. (even backers on a reward based crowdfunding will expect there will be other backers and demand for the product so that they can get it produced in the first place!) This is vital to the overall streamlined crowdfunding process, where deals are getting funded based on an ALL-OR-NOTHING precept. This implies that the success of a fundraising exercise depends on the validity of the product/solution offered.
It is almost like a self-fulfilling prophecy, the product that has a good validation and traction will easily get funded since there are plenty of potential buyers and testimonials around; and vice versa. This is where a billion-dollar-idea is tested whether it is the real deal or not. Crowdfunding platform made product validation possible by allowing for potential investors and customers (and occasionally the nosy online surfer) to give valuable feedback on what a business have to offer.
Features such as online forum or close-group-discussion are areas where business ideas and proposals are being examined further by curious prying eye of the public. By being open and transparent with how the offering is structured, businesses can take advantage from wisdom of the crowd to push for their brand visibility.
Pool of Investors
If you could have a bunch of investors to be in a single room with you while you pitch, you’re either part of a startup accelerator programme or at the typical monthly Business Angel networking event. This privilege is limited to a few businesses, and it isn’t easy trying to get multiple investors to sit and listen exclusively to a single pitch. Online equity crowdfunding platform offers that privilege without special invitations or RSVPs. Investors can flock to see online deals with a flick of a finger finding deals that will tickle their fancy. Why wouldn’t they if they can sit at home and do just that?
In return, businesses get direct access to a host of investors eager to learn on new deals. They could come from various background and expertise, often prodding deals from all sorts of angle. This could be very useful for businesses which are testing their business model and trying to refine the proposal.
In addition to that, businesses could also select investors that could simultaneously be a brand ambassador for the product and services offered. Investors who are committed to see a business lift off would like to ensure that it receives a branding visibility not just in the market, but also amongst the investor’s cliques. The power of networking is therefore tapped through having a broader set of investors who would then push to a wider set of audience.
To know more about how to raise funds through Equity Crowdfunding, go to www.ata-plus.com.