Starting your own business and sustaining it through the early stages can be difficult. Having a game-changing product or idea in mind is only part of process; you must also be able to raise the necessary funds in order to make your dreams a reality. While some entrepreneurs reach out directly to investors or apply for a loan to get money for their business, a growing trend is for aspiring businesspersons to turn to crowdfunding. Crowdfunding opens up the funding process to the public at large and offers incentives while giving the entrepreneur the necessary money to get their business off the ground.
Crowdfunding Avenues You Can Take
There are various ways that you can set up a campaign for crowdfunding in order to raise the capital you need to launch your business or advance your product development. Based on the method you choose, you will be able to entice potential donors and build up your network of contacts in the process.
- Donation or Reward Based – This type of crowdfunding sets up an exchange system, where donors contribute to your project and receive an item that you provide. This is often used for projects that are scientific, artistic or charitable in nature and include films, video games and new products. For example, you may offer contributors of $20 to your independent film a signed cast photo when the project is completed.
- Pre–Purchase Crowdfunding – The pre-purchase model promises supporters the completed item after production is complete. This is common for technical gadgets that inventors are trying to market. For example, you can promise contributors your new “underwater headphones” in exchange for their donation to your cause.
- Equity Crowdfunding – This new type of crowdfunding is moving forward following a unanimous vote by the SEC at the end of October. Equity crowdfunding, if approved in its current format, would give any supporter the ability to purchase equity shares in a company. The SEC is currently working on guidelines for equity crowdfunding that will help spell out the rules for potential investors and entrepreneurs alike.
In addition to getting much-needed funds to further your project, crowdfunding also helps your business in a number of other ways. First of all, by engaging in open, social funding practices you connect directly with your supporters. This helps to build your brand image and create buzz surrounding your company moving forward.
Maintain Compliance with Crowdfunding
An important piece to the puzzle when it comes to crowdfunding is making sure that you are doing business with legitimate investors and clients. As crowdfunding continues to grow in popularity and new methods develop in terms of equity, being able to verify the identity of contributors helps you meet compliance regulations and deter fraud. The key is to work with crowdfunding portals or intermediaries that have a proven system in place to confirm the identity of both investors and entrepreneurs in real-time. This will make it easy to process transactions so that you can continue working on your project and take it to the next level while creating a trustworthy environment for all involved.
Written by Britni Zandbergen, Senior Director of Marketing at Idology. Britni has years of experience in identity management as well as dynamic SaaS solutions.