The Unconventional Means Of Capital Acquisition: Crowd Funding

The primary objective of any established business is to generate profit which will be used to sustain and develop it. But, before that, for any business idea to translate into an executed venture, it needs capital to start and operate in its early stages before any profit is generated. There are multiple ways a business can raise funds. The first option they consider is bootstrapping, which is using their personal savings or pooling money from friends and family, the second is to get a loan from banks and the third is to get an angel investor or venture capitalist on board by giving them some stake in your business. But the arrival and acceptance of internet has added new avenues for raising funds. You can campaign on the internet for capital, and the users depending on their favorability of you, will provide you with funds.

New Funding Entrant

Crowd funding is a recent idea in the area of investment when taken the history of business as a scale. Not everyone can get access to a venture capitalist who aligns and understands the value of their idea. And asking large sums of money from family/extended family or friends is a hard task which creates a feeling of unease in the long run. The internet can arguably be called the best thing humanity has ever conjured. The internet gives you access to theoretically limitless opportunities for getting resources for your business, it has grown to such an extent that you can conduct a large scale operation without leaving the comforts of your home via the internet. A lot of niche businesses which were not understood by the traditional businessmen or those which flew under the radar for its time, found their golden goose on the internet where they got funded by the interested parties across the internet.

Low Realisation Barrier

The grandeur of crowd funding lies in its limits, no amount is too small, a user if he really wants to see the business thrive he can spend as little as he wants without hurting his own bottom line while simultaneously aiding the product development of the business he likes. Crowd funding is the literal personification of “little drops of water make a mighty ocean”. Numerous donors donating little amounts to a product they really like goes a long way for the businesses.

Popular crowd funding platforms like Kickstarter and Indiegogo have aided innumerable amounts of businesses, not just the traditional ones but even gaming companies. The most famous one in the past decade, Undertale by Toby Fox was also a crowd funded venture. Pebble, an innovative smart watch was also a crowd funded product. Crowd funding is a boon for those who make products which cater to niche audience. The crowd funding tactic allows marketing by word of mouth, fans on the internet will share that with others who are in the same niche by means of social media, there are tons of products which got their desired funding amount virtually overnight.

The Methodologies

There are various ways in which a crowd funding can be done. Firstly, the business can pitch the idea in its early stage and backers (this is the term used for people who fund the project) can invest and the business can take this amount and build their product, and they can deliver the product first to their backers when it is completed. The complex ones operate like standard businesses which are subject to financial authority of the territory it is based in, and every backer is subjected to receive a return on investment proportional to their investment. This results in a hefty shareholder base which is similar to retail investors and venture capitalists.

Alternate Contributions

Crowd funding has also served nonprofit causes too, the internet has a way of rallying people together to help catastrophe-struck areas from any corner of the world to aid the affected area. This method has proven itself as a fast efficient way to provide capital in those cases as there is no national barrier and funds can be distributed directly to the impacted area.

Like all investment instruments, crowd funding also has its flaws, but it should not be entirely defined by that, everything serves its purpose. With the saturation of startup and venture capital markets, the competition to accessibility to capital is increasing and aspiring business owners have to resort to new avenues and present themselves to the consumers in innovative ways to provide them with capital.