Crowdfunding platforms are not just a way to raise money for your startup, but also a potential source of disruption for the traditional venture capital model. In this article, you will learn how you can use crowdfunding platforms to challenge the status quo, attract customers, validate your product, and leverage your community.
Crowdfunding is a method of funding a project or a venture by raising small amounts of money from a large number of people, usually through an online platform. There are different types of crowdfunding, such as donation-based, reward-based, equity-based, and debt-based. Depending on the type of crowdfunding, you can offer your backers different incentives, such as a product, a share, a revenue stream, or a repayment.
A totally new avatar of crowdfunding is asset tokenisation - where 'fractional' parts are now recorded on Blockchain - bringing transparency, easy liquidity and opportunity to participate in the evolving DeFi economy.
Crowdfunding is disrupting venture capital in several ways. First, it lowers the barriers to entry for entrepreneurs, who can access a global pool of investors without having to pitch to VCs, give up equity, or meet certain criteria. Second, it increases the diversity of ideas, teams, and markets, as crowdfunding platforms can support niche, social, or unconventional projects that VCs may overlook or deem too risky. Third, it empowers the customers, who can vote with their wallets, provide feedback, and influence the direction of the project.
Most importantly, crowdfunding democratises various alternative assets. What was earlier limited to only a few selected rich investors - is now open to a much larger populace of potential participants. And so, it opens wide opportunities for these participants - who can now think beyond just the conventional assets and can have more imaginative assets to invest into - including likes of luxury bikes, villas and even rare wines!
While crowdfunding can serve as a viable option for raising capital during the early stages of a startup, it may not be entirely equitable to compare it directly to venture capital (VC) investments. Venture capital firms don't just function as investors; they also act as strategic partners. They play a pivotal role in guiding startups, aiding hiring, expanding networks, assisting in crises (which happen quite often), and follow-on funding. They bring valuable expertise and connections, enhancing a startup's chances of success. Thus Crowdfunding = capital VC = Capital + Support
One of the main benefits of crowdfunding is that it allows you to test your product-market fit before launching. By setting a funding goal and a deadline, you can gauge the demand and the interest for your product, and collect valuable data and insights from your potential customers. You can also use crowdfunding to iterate and improve your product based on the feedback and suggestions from your backers. This way, you can reduce the risk of failure and increase the chances of success.
A research shows that every USD 1 raised through crowdfunding is actually equivalent to USD 10 - because what you get in return is not funds, but critical product feedback and early product champions.
Another advantage of crowdfunding is that it can help you build a loyal and engaged customer base. By creating a compelling story and a clear value proposition, you can attract people who share your vision and your passion, and who are willing to support you and spread the word. You can also use crowdfunding to reward your customers with exclusive perks, discounts, or early access to your product, and to create a sense of urgency and scarcity. By doing so, you can generate buzz and excitement around your product, and create a community of advocates and ambassadors.
A successful crowdfunding campaign depends largely on your ability to leverage your community. Your community is not only your backers, but also your network, your partners, your influencers, and your fans. You can use crowdfunding to engage and mobilize your community, by asking them to contribute, share, comment, and invite others to join. You can also use crowdfunding to co-create and collaborate with your community, by involving them in the design, development, and delivery of your product. By doing so, you can increase your social proof, credibility, and trust.
Finally, you can use crowdfunding to challenge venture capital, by proving that you can raise funds, validate your product, attract customers, and leverage your community without relying on VCs. You can also use crowdfunding to negotiate better terms, valuation, and control with VCs, if you decide to seek venture capital later. By showing that you have a strong traction, a large customer base, and a loyal community, you can increase your bargaining power and your attractiveness as an investment opportunity.