Best Practice: Crowdfunding takes expertise, money and time to create a successful online social media campaign with a great video.
Today’s Article: Access to Capital for Branding: Crowdfunding
The crowd funding process is putting your financial request on an online platform such as Kickstarter that connects you with people around the globe that want to invest in new ideas, projects or a business.
Advantages of Crowdfunding
1. Open to start-up and existing businesses
2. Have four potential ways to raise capital: Reward, Equity, Donation or Lending
3. Reach potential investors globally online at a low cost
4. Also taps into people interested in investing locally
5. Reward or donation crowdfunding does not require good credit or running a credit report
6. Money spent on crowdfunding is tax deductible
7. Potential future funding
Disadvantages of Crowdfunding
1. No guarantee of success
2. Takes expertise and money to create an online social media campaign
3. Takes expertise and money to create a video to promote the crowdfunding
4. Takes expertise and a lot of time to create and run a successful crowdfunding campaign
5. For equity or lending crowdfunding, an outside lender is now involved in your company – choose wisely.
6. For reward crowdfunding the business has to deliver on the reward offer and on time
7. Not applicable to all types of businesses or organizations
There are four types of crowdfunding: reward, equity, donation and lending.
Reward-based crowdfunding is the most common type of crowdfunding. This type of crowdfunding involves setting varying levels of rewards that correspond to pledge amounts. A standard rewards campaign offers at least three levels of rewards. Reward crowdfunding tends to work well for businesses with tangible products who require less than $100,000 in funding and typically last for 1-3 months.
Equity crowdfunding came out of the signing of the Jumpstart Our Business Startups (JOBS) Act in April of 2012. Equity crowdfunding is the exchange of actual shares in a private company for capital. Equity crowdfunding typically takes several months or longer and businesses seeking $100,000 or more in funding.
Donation crowdfunding provides for businesses or organizations to raise money by providing a product, service, or a reward. This type of crowdfunding serves social causes and charities best. This type of crowdfunding is often 1-3 months in length and works well for amounts under $10,000.
Lending based crowdfunding allows businesses to raise funds in the form of loans that they pay back to the lenders over time with a set interest rate. Lending crowdfunding takes place usually over a shorter period of time i.e. five weeks and works well for businesses who don’t want to give up equity in their business.
National Crowdfunding Association
The mission of the National Crowdfunding Association is to support, educate, and protect the American crowdfunding market. We represent the interests of both the investor and the entrepreneur in every crowdfunding transaction, whether it is an investment, equity, reward or donation crowdfund offering.
Top 10 Crowd Funding Sites: http://www.crowdfunding.com/
Action Step: Go to National Crowdfunding Association website and review if crowdfunding is an option as a way to raise money for your business.
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