To start a crowdfunding campaign you have to convince the investors that your start-up business is legit and has potential and you have to give them a reason why they should invest in your enterprise.

If you want to raise money for your business and you’re considering using crowdfunding, there are a few things you should take into consideration. And decide if crowdfunding is what’s best for you. Because it is definitely better to know the pros and cons of anything before actually jumping into the conclusion. 

The Pros

    Keeping All Your Equities 

If you do indeed have a triumphant campaign and your business has been lifted off the ground, you won’t have to worry about losing control of your business or giving up your equity.

 Established An Audience 

While running a crowdfunding campaign, your donors are potential customers or advocates since your business plan intrigued them enough to invest in it. Then, they can help you promote your business by talking about it to friends or family, or advertising it on social platforms since they have a stake in the business.

It Provides Validation

It is a great way to test your product and discover the public’s reaction to it and having a large number of investors shows that your product will thrive well in the market which will help when asking for funding in the future.

Broader Investment Opportunities 

With your business having a wide audience, a lot of small investments can add up to produce a large capital.

Alternative Finance Option 

If you are not able to get loans from a bank or traditional funding, crowdfunding is a great way to raise revenue.

Crowdfunding Creates Momentum

Ideas that are unlikely to be funded by traditional investors may be more easily funded.

When investors see that other investors are interested in your product and are willing to invest, they get more comfortable with your idea and invest themselves.

Cons

Fraud

There have been a lot of successful campaigns where creators gain a lot of money but don’t execute the project. As a result, there is a lot of mistrust and reservations which discourages investors from investing.

Low Success Rate

If your proposed funding goals are not reached, you may need to return any money you’ve pledged to your investors and you may get nothing in return. Many factors cause low success rates like lack of preparation or a  bad marketing strategy.

 Idea Theft 

Due to a lack of knowledge on how to protect their intellectual property creators can get their ideas stolen from them. When putting their details about their product on the crowdfunding platform since the investor would want to know what they’re getting into, they could be stolen from copycats who then later sell them as their own. Always consult your legal advisor on how to protect your ideas.

Setup Costs Are Expensive

To run a successful crowdfunding campaign you have to advertise yourself for potential investors to notice you and in doing that you have to prepare marketing promotions and logos, and you also have to run ads. All these are expensive, they have to be budgeted for before running the campaign. 

High Pressure

Crowdfunding campaigns are usually performed within a short time frame, which pressures the creator to want to succeed quickly. If you do have a successful campaign, investors would be eager to receive the promised products and rewards which also adds more pressure.

While there are many cons to crowdfunding the pros might just be worth it for you.

These platforms will get you the funding you need, whether you’re an entrepreneur, an artist, or an environmentalist it won’t matter. 

Kickstarter

Kickstarter is for creative projects like producing a new album or publishing a book, as well as objects and inventions like a personal single-wheel vehicle or a pocket-sized solar charger.

You can’t keep your money unless you reach your goal through cash pledges, thus it’s not actually for buying equipment or helping a charity. The categories include arts, comics and illustration, design and technology, film, food and craft, games, music, and publishing.

Patreon

Although mostly for artists, the platform is trusted by over 250000 creators. It’s free to get started, however, there is a monthly fee for which of the three available plans you want to go with. Patreon is not just for artists, even writers, podcasters, and even musicians can get funded on Patreon.

GoFundMe

With GoFundMe you can raise money for everything from health care, and live events, to funding your business. With GoFundMe you pay a 0% platform fee. And setting up a page is very easy.

You can even control the amount you receive on the dashboard of the platform.  

Conclusion

Although on the outside crowdfunding looks easy, you just register on a platform and the cash starts pouring in. This is the major problem and that’s why some entrepreneurs have failed campaigns because they do not prepare for all the tasks ahead. So have in mind when starting a crowdfunding campaign that it is not a walk in the pack.

Do I Need To Pay Back My Crowdfundings?

It depends on the agreement you had with the investors. If the agreement was to pay back if you did not reach the desired goal, then you’ll be held accountable. But some investors only ask for rewards or a sample of your products in return. But with crowdfunding platforms like GoFundMe, you don’t need to pay back.

Is Money Received Through Crowdfunding Taxable?

You could be taxed for the money received through crowdfunding. It is stated by the IRS that “ Crowdfunding organizers or anyone receiving the funds  should keep complete records of all facts and circumstances surrounding the fundraising for at least three years.”