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The Pros and Cons of Crowdfunding

The Pros and Cons of Crowdfunding
Thursday, August 30, 2018

If you have a product that you’d like to launch but you don’t have the money to do it, who do you turn to? Should you seek an investor or apply for a loan? There is a third option available – crowdfunding. This increasingly popular method of financing a project is helping businesses launch their products into the market.

 

But is crowdfunding the best option for your business? In this article, the Panthera team explain what crowdfunding is, the benefits of it, and what you should consider before committing yourself to this unique finance option.

 

What is crowdfunding?

 

Crowdfunding is a form of alternative finance which works by a business seeking funding raises it from multiple small investments given over by a large amount of people. Crowdfunding has surged in popularity since more businesses have taken to using the internet to gauge how successful their ideas will be.

 

What kind of projects can be crowdfunded?

 

There any many projects that have come to life with the help of crowdfunded investments. One of the first and best-known examples of crowdfunding came from the rock group Marillion. They could not afford to tour the US after the release of their seventh album. Marillion’s fans came together to fund their tour, raising $60,000.

 

The most successful example of crowdfunding was the Oculus Virtual Reality Headset. In 2014, Facebook purchased Oculus for a staggering $2 billion.

 

The pros of crowdfunding

 

Crowdsourcing provides a range of opportunities for inventors and businesses seeking alternative ways to bring their products to market. Here are some of the other reasons you might want to consider crowdfunding:

 

Market insight

 

Crowdfunding gives you a clear picture of the people and businesses who may want to buy your product and where those people are located geographically. Many crowdfunding services allow tiers of donations – the higher a donation, the more a particular investor believes in it, it could be argued. By examining which levels of donations attract the highest number of subscribers to your project, you can check to see how invested some people are in your product and this can provide you with a channel to talk to the people who are taken by your idea.

 

Defined budget

 

In the vast majority of situations, the business owners seeking funding are the people who set the budget for a project. You are under no obligation to deliver the product or prototypes until that budget is reached. If you never reach your target budget, then it is reasonable to assume that your product wasn’t likely to be viable in the market anyway.

 

PR

 

You can’t crowdfund a project without a crowd. As your project gathers momentum, more and more people will start to find out about what you’re selling which is, in itself, free advertising. The most successful crowdfunded campaigns have also made news headlines before with how much they have beaten their budget.

 

The cons of crowdfunding

 

No guarantee of success

 

Crowdfunded projects sometimes fail because investors are located in a part of the world which a business cannot service. For example, if you are hoping to introduce a new product or service in the UK and you launch a crowdfunding campaign, then it is entirely possible that you will receive the funding you need from India. However, you might not be able to supply your product to that market despite that being where the demand is.

 

Not applicable to all products and services

 

Sometimes, your products won’t capture the imagination of your potential investors. Crowdfunding is better suited to products which can excite and inspire your target market. If you are producing something that is more of a necessity rather than a luxury, you shouldn’t expect much from crowdfunding.

 

We can help

 

If you’re looking at launching a new product and you need help with working out which funding option suits your business the best, get in touch with our team. Call us today on 01235 768 561 or drop us an email to enquiries@pantheraaccounting.com for help.

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