2017-12-05 00:00:00 Funding and Financing English Learn about various crowdsourcing platforms, how to use crowdsourcing to fund a new business idea, and the benefits of using crowdsourcing... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/12/Small-Business-Crowdsourcing-New-Product.jpg https://quickbooks.intuit.com/ca/resources/funding-financing/fund-new-product-crowdsourcing/ Using Crowdsourcing to Fund a New Product

Using Crowdsourcing to Fund a New Product

3 min read

The crowdsourcing fundraising model lets organizations utilize large numbers of people on the internet to gather necessary resources for a project. The subsets of crowdsourcing include things such as crowd voting, crowd creativity, crowd design, and crowd labor, with the advantage of gaining diverse input from genuinely interested people. Raising money with crowdfunding is a relatively new way obtain business capital, providing a great alternative to venture capital or other traditional methods.

Crowdsourcing and Crowdfunding Platforms

While many crowdsourcing platforms exist, three in particular have reputations for helping people raise money to start businesses or expand upon business ideas. Founded in 2009, Kickstarter focuses on linking up entrepreneurs with backers called ‘investors’ who receive some sort of perk for giving money to the project. As of late 2017, the platform has helped back 135,000 projects.

A similar type of website, GoFundMe helps individuals raise money for all sorts of projects, including business. These projects tend to be smaller in scale and more local geographically. The site has helped millions of people raise over $4 billion as of late 2017.

Like GoFundMe, the crowdfunding platform IndieGoGo doesn’t use an “all or nothing” approach, so even if you don’t reach your funding goal, you still get to keep the money you did raise. Kickstarter does use the “all or nothing” model, meaning that you get nothing if you don’t raise the amount of capital you set as a goal.

All these platforms offer great infrastructure and reach for your idea to raise money, making it easier than ever to get funding in days. Plus, each platform charges very reasonable fees and only takes a percentage of the money raised, so you never have out-of-pocket expenses.

Why Raise Capital This Way?

Beyond it being free to and ultra convenient to raise money via crowdfunding, the main benefit is you can easily validate your business idea. This means that, most of the time, good ideas raise the money you need. These platforms offer instant reaction from the marketplace, and this is what makes them so revolutionary. Traditional bank loans require tedious business plans and credit checks along with numerous hoops to jump through. Plus, if your business fails, you still owe that money back to the bank, unlike with crowdfunding. You’re free to spend all the funds on your business, and if that business fails, you don’t owe anything back to your supporters.

This method also has benefits over traditional investors such as venture capitalists or angel investors. When traditional investors give you money, they take equity in your business, which gives them a major say in how your company evolves and operates. That’s not the case with crowdfunding. Your supporters get no equity and they can’t tell you how to run your business. They just expect you to make the product you promise to create. Anyone who likes the idea of having full control over their business, retaining all the equity, and having no liability if the business fails should pursue crowdfunding options.

Tracking Results

Each platform offers tools to track the internal results of the crowdfunding campaign and money raised, but that’s all the analysis they provide. If you’d like to focus on tracking the marketing and social media efforts that funnel leads to the campaign itself, platforms such as Facebook and Google provide these services to paying ad customers. Also, many specialty agencies online provide comprehensive marketing and social media analysis for crowdfunding at reasonable prices. If you have the budget, you might want to consider using such services to increase the likelihood of your crowdfunding campaign’s success.

While getting business funding used to require lots of inquiries and forms, the internet age and crowdsourcing has made crowdfunding a simple way to get your startup on its feet and in the running in a short amount of time.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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