Why is it so challenging to get funding for a new business venture? You try going to your local bank or credit union but were quickly turned down because of your low-income, less-than-stellar credit, or lack of collateral.
Private lenders aren’t willing to take a chance on you because you don’t have much of a track record for generating positive revenue. You even created an account on a donation crowdfunding site, but you’re nowhere near your goal.
Unfortunately, many entrepreneurs seeking funds for their business find themselves in this situation. They have the vision, did the necessary research, and even attempted to set aside as much money as they could, but it’s not enough to get their company off the ground.
While you could hold off on your business plans and continue to raise funds, it could take years. Before you give up on your entrepreneurial dreams, you may want to consider equity crowdfunding.
What is Equity Crowdfunding?
Equity crowdfunding is a fundraising strategy for entrepreneurs. It’s essentially a platform that matches them to a large group of people that want to invest in startups. You sell non-voting shares in your business in exchange for funds for startup, operational, expansion, and other related expenses.
What Are The Advantages?
What makes equity crowdfunding a viable option for entrepreneurs?
Access To Capital
When local banks, credit unions, and traditional lenders turn you down, equity crowdfunding is an efficient alternative. As most people 18 years of age and older can invest with fewer risks, startups have a higher chance of reaching their fundraising goals. With a solid campaign, entrepreneurs could quickly raise several hundred or thousand dollars to bring their visions to life.
Maintain Control Of Your Business
Some entrepreneurs end up having to relinquish a portion of decision-making control to their investors. While this can be a great opportunity, not everyone is a great business partner. Not being able to make decisions without the input and approval of others can be overwhelming. With equity crowdfunding, you can maintain control by selling non-voting shares in your business and negotiating terms you can live with.
Instant Brand Ambassadors
Anytime you have someone vouching for your products or services, it’s an opportunity to generate new business. When you create a campaign on an equity crowdfunding platform, you’re automatically routed to hundreds, if not thousands of individuals. Those that invest in your brand want you to succeed. As a result, they’re more inclined to spread the word about your offerings.
Another advantage to starting an equity crowdfunding campaign is increased exposure. Your campaign is accessible to millions of people. Even if they are interested in investing, they could become a potential customer. If they’re pleased with your products and services, they’ll recommend you to others which can lead to increased sales.
Things To Keep In Mind
There aren’t too many downsides to equity crowdfunding for startups, but there are some things to keep in mind. For starters, creating a campaign and increasing exposure is your responsibility. You’ll have to work hard to create a compelling pitch that appeals to your ideal investors.
Another thing to keep in mind is that not all entrepreneurs successfully reach their fundraising goals. While you may put your best foot forward to attract investors, it may not be enough to get the capital you need. So, you may want to consider other funding sources to get closer to your target.
Finally, equity crowdfunding does come at an expense to entrepreneurs. While costs will vary, you’ll be responsible for legal, accounting, platform, and marketing costs.
When you’ve tried traditional avenues to raise money for your startup with no luck, don’t give up hope. Innovative opportunities like equity crowdfunding offer a viable solution. You can gain access to cash (and so much more) from thousands of investors in exchange for equity in your business. The right idea and marketing campaign can open the doors for a chance to turn your small business dreams into a reality.