All about crowdfunding

By Julian Harlow

Crowdfunding may seem like a simple concept - putting your idea for a project or business online and inviting people to invest. But there are a number of aspects that distinguish it from traditional sources of funding. These differences have helped crowdfunding grow strongly over recent years as entrepreneurs and others look to take advantage, but this new type of fundraising also provides a set of challenges unfamiliar to many business people.

What are the benefits?

The standout feature of crowdfunding is access to new sources of funding. Many business owners started out by seeking financial help from family and friends, but crowdfunding allows a much wider network to approach for funding through online platforms and social media.

Family or friends may support your project because they have an emotional connection with you or because you are able to inspire them with your idea. In this way, crowdfunding investors are similar to personal networks. Typically, projects do not offer the prospect of financial returns - many crowdfunding platforms (such as Pozible) expressly prohibit it. Instead, rewards can be of nominal value, the chance to become an early customer or just the satisfaction of being involved.

Crowdfunding is also a way to try out your business idea, get feedback and maybe improve it before starting out. Another advantage is that the whole process of running a crowdfunding campaign can provide a good test of your skills across a range of areas from marketing to strategy and planning.

Not as easy it sounds?

Setting up a crowdfunding campaign is a major undertaking in itself, particularly as more and more aspiring entrepreneurs compete for attention. If you hope to raise your initiative's funds from a raft of small pledges you must be adept at using social media effectively and knowing how to engage with potential investors.

Overselling or promising rewards you can't deliver is just one risk for those eager to gain attention for their proposal, and it's an error that's becoming more perilous as social funding's success attracts increasing interest from regulators such as ASIC.

There's only one way to get experience

The greatest positive of crowdfunding is that even if your campaign fails to generate the hoped-for response, you will have built up a range of skills in the process.

Would you use crowdfunding for a future project?


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