Raising funds as small sums of money from a large number of contributors is crowdfunding. The capital pooled in can come from a variety of donors who may or may not receive something in return for their contribution. This depends on the type of crowdfunding chosen.
In the case of Donation Crowdfunding, the donor doesn’t expect anything in return and merely supports the project. In Debt Crowdfunding, the lenders are repaid the money with the interest within the stipulated time period. With Equity Crowdfunding the contributors get to own shares in the company. Rewards Crowdfunding on the other hand offers non-financial rewards such as goods and services to the donors for their contribution.
This kind of marketing strategy to gain capital lies outside the traditional sources of financing which include investors, venture capitalists and banks. They are thus turning to the crowd for support. But it should also be noted that at times investors do contribute to crowdfunding as well. Especially since it involves low-risk ventures.
Digital presence: Funding via online platforms
In a world that is constantly evolving with respect to technology, one of the most common platforms for crowdfunding is online. There are various platforms that entrepreneurs can utilise to promote their ideas or projects for which they seek financial support. According to Investopedia, these include Indiegogo in the overall category, SeedInvest Technology for startups, Mightycause for non-profits, StartEngine for investing, GoFundMe for individuals and Patreon for creative professionals. Other platforms include Kickstarter, Wefunder, Crowdcube, AngelList etc.
A major benefit of having online platforms for crowdfunding is that it provides entrepreneurs with the space to demonstrate their business ideas and projects. This also generates a wider outreach for the promotional content as companies also utilise their social media platforms. According to Fortune Business Insights reports, the global crowdfunding market in 2022 was valued at $1.25 billion. It is projected to grow from $1.41 billion in 2023 to $3.62 billion by 2030 at a CAGR of 14.5%.
Generally, these platforms also charge fees for hosting campaigns, and based on the company, the features, the type of crowdfunding opted for and the campaign, additional costs might also be applicable.
Marketing tools and strategies
Any company will have a set of ideas that aim at promotion and increasing outreach, improving the brand image and staying ahead in the market space. These marketing strategies help the company by catering to the various aspects of marketing which include product development, pricing, promotion, and distribution among others. These help in gaining a competitive edge over other similar companies or products.
One such important factor is the financial status of the company itself. Which is where crowdfunding comes in. Although it is not directly a marketing strategy, it is a broader marketing and fundraising strategy that plays a crucial role in the growth of the company.
What to know before you venture into crowdfunding?
An understanding of the market, target audience, trends and behaviours helps you understand what the audience is interested in and would have a higher chance of investing in. While crowdfunding is generally thought to be one of the easiest ways of sourcing capital, there is a lot that happens behind the scenes. There are several aspects that need to be taken into account while planning one.
These include having clarity about the business idea or project, choosing the right crowdfunding model, setting realistic goals, creating a compelling campaign, pre-launch marketing, post-event communications and much more.
Business applications and opportunities
Here are 5 ways that crowdfunding contributes to the business:
1. Promotion, marketing and publicity
Crowdfunding generally coincides with product launches. This can be used to source crowdfunding which would also promote the product and/or other business ideas as well. The promotion itself would involve creating and launching campaigns, generating engaging content, and connecting with people and potential contributors. This also helps generate traffic.
2. Financing strategy
This is the primary objective of crowdfunding. Businesses use crowdfunding to secure funds for various purposes, such as product development, market expansion, or project execution.
3. Publicity and community engagement
Grabbing the attention of potential customers, contributors and especially the media aids in generating the necessary buzz around the company. This also contributes to the propagation of its brand image and can be beneficial for future endeavours.
4. Market validation and audience building
While launching a new product, there is thorough market research that is conducted and crowdfunding campaigns provide an additional platform to verify and validate the market interest. Crowdfunding campaigns act as a medium for establishing a customer and supporter base. They generally also become brand advocates and can continue to be actively involved for a longer time.
5. Competitive advantage
Crowdfunding helps with the publicity of the business by increasing brand visibility, demonstrating their unique value proposition, and also helps them establish themselves and gain a competitive advantage over other similar companies.
Crowdfunding thus acts as a tool for successfully raising capital. In order to reach your financial goals, though, it will require dedication, efficient marketing and a well-thought-out campaign plan. However, it has its own set of risks and challenges. Running a campaign doesn’t guarantee its success. It also takes effort to manage the large numbers of investors and capital that come in.
Embracing crowdfunding is more than just a financial decision; it’s a strategic move towards a brighter business future. Stay informed, stay ahead, and let the crowd power your dreams.
