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Three Ways Crowdfunding Capital Benefits Entrepreneurs
In half a decade, the crowdfunding industry has grown nearly 1000 percent, offering roughly $10 billion to bourgeoning small businesses around the world. As crowdfunding grows in popularity and these figures swell, the coming generations will understand the power of this new funding method.We see countless examples of entrepreneurs meeting their funding needs within the crowd. Not only will these stories inspire a new age of business professionals, but they will also provide them with the opportunity to raise capital. Here are the three top ways that crowdfunding capital benefits entrepreneurs.
#1: Replacing Bank Loans
According to GoGetFunding, in 2012, 42 percent of equity-based crowdfunding projects raised over $100,000. In fact, compared to any other form of crowdfunding, these campaigns yielded more funds per project. According to the Small Business Chronicle, a typical bank loan ofthis amount may cost a business six percent or more in interest. In this respect, raising capital through the crowd forgoes these repayment obligations, saving businesses money that they can turn around and invest back into their respected company.Emerging generations will view this method as more viable than meeting with banks, filling out applications and facing rejection.
Although equity crowdfunding allows businesses to swap shares for capital, entrepreneurs may still require some form of a loan. In 2012, lending-based crowdfunding doubled, elevating to $1.7 billion. Despite such growth businesses still do not perceive this as a primary method of funding because of notably higher interest rates.But when all other institutions say no, this does provide an alternative. As a supplementary form of capital, this may assist entrepreneurs in their developing stages. Knowing as much, there seems to be a type of crowdfunding for various start-up stages, which is why more and more entrepreneurs see this as a modern recipe for success.
#2 Testing Niche Markets
Approximately one-fourth of crowdfunding in 2012 went into the “other” category. What does this say about the industry? It says that crowdfunding enables a diverse set of innovators and entrepreneurs to explore new ground, test niche markets, and grow without traditional restraints. Look at crowdfunding giants like Kickstarter and all of the possible industries they allow projects to launch from. Not only can entrepreneurs now seize the opportunity to make it in an unorthodox industry, but they may also discover market insights along the way.
Depending on the audience’s engagement, crowdfunding may reveal who’s willing to purchase a product or service as well as who’s willing to invest in it. This data gives entrepreneurs an advantage over those of previous generations.
Furthermore,crowdfunding equity may result in investor teams — rather than a single angel or VC as support—so entrepreneurs stand to gaindiversityin thought behind their newfound capital.
#3 Building a Foundation
CrowdValley reports that one new job spawns per $37,702 investment, so considering last year’s earnings, the market forecasts approximately 270,000 new jobs in the U.S. for 2014. As more entrepreneurs turn their ideas over to the crowd,people will begin to notice the profound effect this activity has on the economy. The small business culture has already become a prominent part of North America’s economy, so this publicity will only further encourage young graduates and professionals to avoid corporate environments. The dream of self-employment continues to grow, and this will translate into more jobs overall. Building teams out of an inspired generation will supply these start-ups with enough manpower to last for the long-haul.
Written by Aaron Djekic
Founder and CEO of CrowdClan
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