All the Pros and Cons of Donation Crowdfunding for Business

The Big List of Pros and Cons for Business Crowdfunding by Donations

CrowdfundingFor new startups and new entrepreneurs, crowd funding may offer a realistic funding soluti9on. Donation crowd funding gives new companies a chance to gain an audience and raise money. However, it’s as important to example the pros and cons of business crowdfunding the way you might consider any other business finding alternative.

How Donation Crowdfunding Works

There are different kinds of crowdfunding, but this article concentrates on donation crowdfunding, as this is the most typical route for new businesses.

In a nutshell, donation crowdfunding works like this:

  • People with a project, product, or service post their requests for funding on a crowd funding platform. Typically, they will incentivize different levels of funding by promising to send a product, discount on future products, or a token as a rewards.
  • Supporters view the idea and decide to contribute.
  • The platform serves as a middleman that handles payments and takes a cut. The company that receives the donations is responsible for sending out rewards.

Why Consider Donation Crowdfunding as Alternative Funding Source for Your Startup or New Product?

You probably already know that you may have a tough time obtaining traditional financing for a startup company. If you don’t have a track record of running a business and handling business loans, banks are likely to decline your request for a loan. Even though online business lending platforms might not need a business credit score, they will also want you to demonstrate your business activity in some way.

Investors don’t grow on trees either, and if you find one, you probably have to give up a stake and some control in your business. With crowdfunding, you might get a chance to get a small stake from many investors instead of finding that one wealthy investor who will offer you a lot of money. In that way, it can be a lot easier.

Surely, you’ll have to promote your crowdfunding request. At the same time, you can pick one of the popular platforms that already draws an audience of people who are interested in new projects. One of the best things about this method of raising money is that it gives you a chance to hone your promotional skills and gain an eager audience. Once you actually start producing, you should already have a base of leads and customers, which is something that many startups lack.

Pros of Business Crowd Funding

To summarize, consider these great advantages to crowdfunding your startup company or new project:

  • It gives new companies a chance to build an audience and even a base of leads and customers.
  • If offers a way to raise funds without going into debt or entering into a more formal relationship with an investor.

Cons of Donation Crowd Funding for Startups

The biggest con to this idea is that most startups don’t raise that much money. Average totals range around $7,000, and even this amount might take a few months to raise. It’s extremely rare for a new company to raise close to $100,000. It’s also hard to know how long to let a campaign run.

Also, some donation crowd funding platforms will cancel the campaign if the initial goal can’t be met or exceeded by your completion date. Imagine your frustration if you spent a few weeks to promote a $10,000 campaign, only raised $8,933, and then you got nothing out of your efforts. If you decide to employ donation crowd funding to raise business funds, you should carefully consider the pros and cons of each crowdfunding platform as well. If goals aren’t met, this may reflect poorly on the sponsors.

When to Consider Donation Crowdfunding For Startups and New Products

Startups or existing companies with new projects might consider donation crowdfunding. This alternative financing method can help raise money and also secure some extra publicity. Typically, companies with simple ideas that are likely to appeal to consumers will do better than B2B companies with complex projects. Also, it’s important to have realistic goals as this is not a likely way to raise six figures.

 

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