Crowdfunding is a popular method of raising money for an upcoming business venture. Individuals and other businesses make donations to the campaign to help the entrepreneur earn enough capital to create the product or launch a business. It can seem like a novel and risk-free way to raise funds quickly, but crowdfunding is not without risks. Anyone considering this form of business financing should understand and weigh their risks carefully.

Choosing the Most Appropriate Platform

As crowdfunding has become more popular over the past several years, more platforms have appeared to compete for business and meet the demand. Kickstarter was one of the first and remains well-known, but several other options also exist. Here are some factors every entrepreneur should consider when selecting a crowdfunding platform:

  • Terms and conditions 
  • Typical demographics of website visitors 
  • Average number of website visitors per day 
  • How much the platform charges to run a campaign and disperse funds  

Build Interest Before Launching a Campaign

A common mistake among new entrepreneurs is to launch a campaign and then focus on attracting people to it. Beginning an advertising campaign at least 90 days prior to signing up with a crowdfunding platform is a much better approach. People will not simply arrive at the campaign website just because it exists. By waiting too long to advertise, the entrepreneur must invest time in finding new donors before the campaign expires. This could end up creating an inefficient campaign with disappointing fundraising efforts.

Fulfillment Issues

Most donors don’t pledge money to a crowdfunding campaign out of the goodness of their hearts. They expect some type of reward, whether it’s a future stake in the company or immediate delivery of some type of participation gift. Campaign organizers must ensure they set aside enough funds to fulfill promises made to donors or they could have to deal with many angry people at the same time. Securing the right shipping supplies in advance is also essential.

Magis Funding offers several alternatives to crowdfunding and traditional business financing. Please contact us today to learn more.