Why Crowdfunding Isn’t the Best Financing Option
Many startups are turning to crowdfunding for a convenient source of financing. At first glance, this strategy seems easier and more convenient than traditional loans, investors and other financing sources. Find out why this may not be a good idea for your business and how to succeed in financing your startup in other ways.
One of the biggest flaws in a crowdfunded startup is precisely that it’s too easy. Traditional investors and financial institutions will look very closely at your business plan and offer you critiques. While this process may be painful it’s essential to refining your plan and creating a streamlined, successful business. Crowdfunding never forces you to confront the weak areas of your plan.
A crowdfunded startup is an isolated startup. VC and angel investors are almost as valuable for their insight during a crunch as they are for their startup capital. A crowdfunded plan may give you the financing you need but you won’t have a team of experts ready to assist you in making your business a success.
Part of the reason your business will be more isolated is that you are only linked to your investors through technology. Because you rarely if ever meet a crowdfunder of your business you won’t form a relationship with that investor. Another reason is that many crowdfunders are micro-investors. This means that, instead of a single investor signing on for thousands of dollars in an investment, hundreds of investors are choosing a loan of $20-$100. No single investor is fully committed to your success and many investors may be amateurs or investing outside their expertise.
The entire investment world can feel like a crowded market, but crowdfunding sites are particularly packed with similar business ideas, campaigns and other calls for cash. Even the most unique and successful ideas can quickly fall to the wayside or become lost in a sea of startups. Instead of waiting for lightning to strike on a crowdfund site, consider working directly with investors and financial institutions.
An experienced investor or conventional business lender will have the resources, expertise, and customer service you need to keep your business moving forward. Now that you know more about the dangers of a crowdfunded startup, take your business plan and your resources to a more tried-and-true method of launching your business. Invest your time in finding an investor who understands your business and can critique your business model to create a successful startup.