It is no secret that crowdfunding is changing the way businesses recruit for capital and investors fund initiatives. While crowdfunding is not a new concept, its popularity in recent years has taken a significant step forward and made it one of the most popular lending vehicles available to investors today.
But while many are certainly familiar with crowdfunding, they might not be aware how exactly it is changing the business world. What exactly does crowdfunding do that is causing such a dynamic shift in the lending game? Here are a few examples of ways crowdfunding is modernizing lending capabilities, making it easier for businesses to raise capital and giving confidence to investors:
“Crowdfunding empowers entrepreneurs and private investors alike.”
Entrepreneurs are in charge
When it comes to crowdfunding, an entrepreneur with an idea simply needs a platform from which to pitch that idea. According to CrowdFund Beat, this model has given entrepreneurs an incredible amount of power, as they can crowdfund just about anything.1 If an entrepreneur has a solid business plan and enough publicity to convince others it is a good idea, the funds will start pouring in. Crowdfunding has given a great deal of control to entrepreneurs to present their projects as they want and to ask for a desired amount. While there will be presumably more backers to the project, there are fewer decision-makers riding alongside the project making sure it will work this way or that. Simply put, if public opinion agrees with an entrepreneur’s vision, it is likely the project will receive funding. And since the scope of investors is significantly broader, it is increasingly probable that the entrepreneur will come out ahead.
Time and resources become less of an issue
A person needs to only make an idea public to crowdfund it. No matter what the business model is, an entrepreneur can rely on the funding to attain all necessary production and implementation costs, requiring no upfront expenses. Gizmodo demonstrated just how significant this turnaround ability is.2 The source highlighted how the entrepreneurs behind Pebble Time, which is a new smartwatch concept, achieved their goal of raising $500,000 in the first 30 minutes of the campaign being launched. The Pebble Time crowdfunding campaign continued to accrue investments and grew to $20 million before the campaign ended. The fact that an entrepreneur can pitch an idea and then have the masses respond in such little time with such large investment dollars demonstrates the power that crowdfunding has.
But crowdfunding is not the only avenue for this. Venture capitalists and private equity investors can take advantage of online lending platforms in much the same way. This applies to angel investors as well. In fact, according to Business Standard, LetsVenture, an online lending platform for angel investing which began in 2014, raised $6.5 million for 23 start-ups.3 According to the site’s creators, this is a platform for entrepreneurs who might not have access to funding.
Social media easily keeps investors up to speed on a growing concept.
It is clear that modern businesses can’t ignore the power and potential that crowdfunding has. Whether a startup company is looking for funding or a large company is looking to increase its production, crowdfunding puts investor dollars into projects.
While these are only a few of the ways crowdfunding is revolutionizing the way business investments are taking place, it is clear this investment vehicle is here to stay, empowering both entrepreneurs and private investors with choice and the ability to better manage risk.
1. “How Crowdfunding Will Change the Business World,” Eric Michaels, 2014. CrowdFund Beat.
2. “Pebble Time Shows Us Just How Much Crowdfunding Has Changed,” Maddie Stone, 2015. Gizmodo.
3. “An alternate platform for angel investing,” Ranju Sarkar, 2015. Business Standard.