It is common disbelief amongst people when they think that they have proper knowledge about crowdfunding. But, in reality, this is not true. The processes that are involved in it are more complex and complicated than they look.
Crowdfunding is a way in which you can raise funds. The purpose of raising funds can be different; it can be for a business, charity house, non-profit firm, etc. People have been using this method of raising funds for a long time. If you are new in this field, then you might have loads of different questions. Given below is a list of the most common crowdfunding questions that people ask.
1. What is a crowdfunding platform?
First of all, a crowdfunding platform is a website through which the campaign is hosted. You will find several platforms in the market that have a specialization in different niches. These are basically internet websites or portals which bridge the gap between backers and project owners. Using these platforms, you can raise the entire campaign and ask people to donate through these portals.
2. When can you use crowdfunding?
This is one of the most asked questions as people are never sure about the timing of the campaign. If you want to fund the growth of your business and execute another strategic business plan, you can use crowdfunding. It is primarily done when you are rolling out a new product, building a physical location or trying to generate fund for Research and Development.
3. What is the advantage of crowdfunding?
It is a fast way in which you can raise funds without paying any additional fees. It will take away the slow process of privately raising the fund. When you are pitching a client or projecting your own business through an online portal, it can attract more media attention. Investors can also keep a track on your progress as everything is online.
4. What are the different types of crowdfunding?
You get different options under crowdfunding which you can choose from. Each type has a different purpose and serves to various investors and businesses. The main types of crowdfunding are- Reward crowdfunding, Debt crowdfunding, Equity crowdfunding, and Donation crowdfunding. You can choose the one that best fits your business requirements.
5. What is the drawback of crowdfunding?
Since it is such a public affair, a single mistake can cause a considerable impact. It will get challenging to hide failed offerings. As already stated above, it is not easy as it looks like. Raising finance through online portals can be a challenging task. When you choose a platform, you will have to put in a lot of effort to build up public interest before the project launches. A failed project can have a severe impact on the image and goodwill of a business.
6. How can I get more backers?
The only solution to this question is to have an excellent marketing strategy. The platform might help in generating more backers; you will have to come up with a plan on your own. Use a targeted social media platform which will enable you to target viewers around the world.
7. Is it necessary to have a legal entity to raise funds?
There is no compulsion that you have to be a legal entity in order to raise funds. You will find several campaigns of this type that are created on a general platform. When you are using donation or rewards, then technically you can do it without a legal entity.
These were the most common questions that people have regarding crowdfunding.
