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If you are considering raising finance for your business, project or venture through crowdfunding, there are a number of factors that you might want to consider.
Eight advantages of crowdfunding:
it can be a fast way to raise finance with no upfront fees
pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
sharing your idea, you can often get feedback and expert guidance on how to improve it
it is a good way to test the public's reaction to your product/idea - if people are keen to invest it is a good sign that the your idea could work well in the market
investors can track your progress - this may help you to promote your brand through their networks ideas that may not appeal to conventional investors can often get financed more easily your investors can often become your most loyal customers through the financing process it's an alternative finance option if you have struggled to get bank loans or traditional funding
Invest Through Equity Crowdfunding: Risks and Rewards.
Crowdfunding refers to raising money from the public (i.e., the "crowd"), primarily through online forums, social media, and crowdfunding websites to finance a new project or venture. Equity crowdfunding takes this one step further. In exchange for relatively small amounts of cash, public investors get a proportionate slice of equity in the business venture.
Previously, business owners raised such funds by borrowing from friends and family, applying for a bank loan, appealing to angel investors, or by going to a private equity or venture capital firm. Now, with crowdfunding, they have an additional option.
Equity crowdfunding is rapidly gaining in popularity. According to research by Valuates Reports, the global crowdfunding market was valued at $10.2 billion in 2018 and is expected to reach $28.8 billion by 2025. But as with any mode of investment, investing through equity crowdfunding has its own risks and rewards.Get Your World Class Crowd Funding Set-Up Today !
Risks of Equity Crowdfunding
Greater Risk of Failure
A business that has been capitalized through equity crowdfunding arguably runs a greater risk of failure than one that has been funded through venture capital or other traditional means that offer seasoned professionals to help steer a start-up through early development challenges. The success of a business cannot be assured merely by funding. Without an adequate business plan and support structure, even promising ventures can fail.
Online forums and social media are ideally suited for equity crowdfunding because they offer wide reach, scalability, convenience, and ease of recordkeeping. But these very features also make it easy for scammers to set up dubious ventures to attract equity crowdfunding from naive or first-time investors. Never skip the step of doing due diligence on any investment you're considering.
Years to Materialize
Every investor expects some future return. However, returns on equity crowdfunded ventures may take many years to materialize if at all. For example, management may deviate from the business plan or have difficulty scaling the business. Over time, this may lead to capital erosion rather than wealth creation. There may be an opportunity cost attached to your investment that you should consider since it ties up capital that could be used elsewhere.
Security of the Crowdfunding Portal or Platform
In recent years, hackers have displayed an alarming ability to break into seemingly impenetrable data repositories of leading companies and financial institutions and steal credit card details and other valuable client information.
A similar risk exists for crowdfunding portals and platforms, which are vulnerable to attacks from hackers and cyber-criminals. So in addition to researching the investment itself, make sure to look closely at the platform, too. Kickstarter, Indiegogo, Crowdfunder, and GoFundMe are a few worth checking out.
Lower-Quality Investments the Norm
For skeptics, the question arises whether a company would only use equity crowdfunding as a last resort. For example, if a company is unable to attract funding from conventional start-up funding sources like angel investors and venture capitalists, perhaps then it would turn to equity crowdfunding. If that is indeed the case, then equity crowdfunded businesses are likely to be more mediocre investment opportunities with limited growth potential.
Rewards of Equity Crowdfunding
Potential for Outsize Returns
Since the risks are high, the potential for huge returns on equity crowdfunding is high, too. The story of Facebook's $2-billion acquisition of crowdfunded virtual reality headset maker Oculus Rift in 2014 is now the stuff of legend. Oculus Rift raised $2.4 million on donation-based crowdfunding portal Kickstarter from 9,500 people.
However, since these backers were donors rather than investors, they did not receive any payout from Facebook's acquisition. Had Oculus Rift raised its initial capital through equity crowdfunding, the Facebook buyout would have generated an estimated return of between 145 and 200 times of an individual's investment, according to Chance Barnett, CEO of Crowdfunder, and others. That means that a mere $250 investment would have resulted in proceeds of $36,000 to $50,000.
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This is life changer crowdfunding App that had already affected millions of life globally.
Total crowdfunding raised in reward and donation crowdfunding: $5.5 billion
Total crowdfunding raised in equity crowdfunding: $2.5 billion
Crowdfunding by Region
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