For thriving enterprises to jumpstart their business operations, it is necessary to borrow capital. However, small businesses oftentimes lack the minimal requirements that most banks or big financial institutions seek to provide a loan.

Given this situation, does this mean you can no longer push through with your business? Recently, the launch of crowdfunding has enabled entrepreneurs with an option instead of heavily relying on traditional loans. In this article, we will briefly discuss what crowdfunding is, how your investors can be rewarded as they support your business endeavors and some essential tips to manage a successful campaign.

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How crowdfunding works

Crowdfunding is an effective approach to raise project funds or online products in small quantities. Friends, loved ones, family members, and investors can contribute to whatever amount to let you attain your target goal. These donors in exchange can get something in return, which varies depending on the crowdfunding type that you employ.

Various crowdfunding classifications

Donation-based.

his crowdfunding type enables individuals, business owners, and mini enterprises to target the desired funding. People can donate money to help achieve a goal even without getting anything in return.
GoFundMe is the most popular donation-based crowdfunding tool having an average of 2.3 million users in a month. The site helps users to gather funds even without meeting the set goal. Compared to other platforms, GoFundMe does not provide rewards to the supporters.

Rewards.

This type of crowdfunding is the same as the donation-based crowdfunding in such a way that it depends on the donations from a huge number of investors. The main difference is that funders are given various incentives that are based on the donated amount. Giving a small contribution may bring no reward or a simple ‘thank you.’ For major contributors, this enables members discounts or freebies for achieving the specific goal that they supported. This crowdfunding method is recommended for startups willing to test their market knowledge. In case your startup isn’t getting funds with your available product, then this means your customers are not interested in it. Among the rewards-based crowdfunding tools, the two widely used are Kickstarter and Indiegogo.

Kickstarter is known to operate using a goal-based approach. At the start of the campaign, there is a set goal that must be achieved to get your funding. This brings more importance to targeting reasonable goals.

For Indiegogo, it does not use a fixed approach. You can select a payment fee of about 9% to get funding, whether you attain this goal or not. The upside is getting your funding whatever it takes. However, without a goal, you may miss out on a motivator for you and your backers or your capacity to leverage the fear of missing out (FOMO). If you are part of the specialized industry, you could see mini platforms that are focused on healthcare or non-profit organizations.

Equity.

In other crowdfunding platforms, they help fund small enterprises where equity is used in exchange. Using this model, backers are turned into shareholders, receiving a percentage of the future return of investment.
In this crowdfunding type, Crowdfunder and CircleUp are two popular platforms for equity investment. When employing a Crowdfunder, it usually costs a monthly fee that ranges from $450 to $750 while CircleUp uses a fund percentage you have to achieve.

Equity crowdfunding also uses specialty platforms. One good example Fundanna, which is an equity crowdfunding tool for cannabis enterprises. Considering cannabis is identified as a Schedule I drug, financial institutions, banks and lending firms are not allowed from providing financing to cannabis firms. Fundanna assists in linking cannabis entrepreneurs with investors who provide funding in exchange for equity.

Peer-to-peer.

Compared to other crowdfunding tools, peer-to-peer (P2P) fundraising can expand your audience’s reach through your fundraising activities. Using P2P, individual supporters optimize their social networks to increase funds. Classy, a specific platform, for instance, instead of providing incentives with equity, nonprofits request team members to develop campaigns and provide them incentives such as T-shirts or related rewards aside from what you get from the platform.

In a private approach, you can seek funding assistance by applying for a meager business loan using a P2P lender (e.g. LendingClub and Bitbond). These lenders take on the same model in enabling members to fund either in whole or in part of the loans to small entrepreneurs.

Crowdfunding advantages and setbacks

Pros

*Make use of your social networking.

Ask around your close friends, family members, and acquaintances to back your project. This is best for startups wanting to raise funds for their enterprises.

*Get access to crowdfunding groups.

Widely used platforms have their followers, providing access to a bigger audience.

*Achieve vital project feedback.

How people react to your funding campaign ensures getting feedback, whether they are interested in your business venture before the market launch.

*Receive incentives for clients.

Rewards, perks, and even equities are a good approach to encourage potential customers to support your business through funding initiatives.

*Raise funds instantly.

Crowdfunding tools usually provide supporters a 30- to a 90-day window for financial backing for your enterprise. A short-term period means getting funds much faster.

Cons

*Your social network may be exhausted.

With much reliance on your social circle for funds, carefully select projects to prevent asking your family and friends for assistance.

*The need for investing time in your campaign.

If your project needs people’s support, you need an interesting video and engaging campaign page.

*Everything comes with a cost.

Paying a minimal fee or a percentage is required to get funds. Using rewards crowdfunding, you need to deliver the agreed incentives while giving up a percentage of your potential earnings using equity crowdfunding.

How AladiEx can raise funds for your projects

AladiEx is a platform that helps enterprises increase their capital for their global projects in a low-cost, minimal barrier manner and assists investors worldwide. It uses user-friendly trading tools to easily manage their assets and projects. AladiEx seeks to assist a million MSMEs with the funding needs in the next five years. For more details about how AladiEx works, you can visit our website at https://aladiex.io/

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