This article introduces a typology of crowdfunding, the benefits it offers, and how specific benefits relate to the identified crowdfunding types.
The researchers present a framework for choosing the right crowdfunding type for each stage in the startup life cycle, in addition to providing practical advice on crowdfunding best practices.
The best practices outlined have shown demonstrable contributions toward achieving funding goals and are likely to prove valuable for startups.
Jeannette Paschen (2017),Choose wisely: Crowdfunding through the stages of the startup life cycle, Business Horizons, Volume 60, Issue 2, 2017, Pages 179-188, https://www.sciencedirect.com/science/article/pii/S0007681316301252.
‘Pim van de Velde, director of a Dutch crowdfunding platform ‘Kapitaal Op Maat’: ‘First of all, my conclusion is that crowdfunding, crowd financing or crowdlending is no longer alternative financing, but a fully accepted way of corporate financing. This is also apparent from all the reactions within and from outside of the industry. Crowdfunding has the full attention of the government, science, business and not in the least of the investors (predominantly private individuals) themselves.’ - Source: Kapitaalopmaat
Van de Velde: "It is remarkable that a fast-growing phenomenon such as crowdfunding, or better crowdlending, is being played down by some researchers. Crowdlending clearly meets a need and offers a solution for the financing issues of SMEs that are virtually zero on the spot with banks."’
‘There is always room for newcomers with a different way of working at service providers. We see online insurers without offices, online stores without business premises and now alternative lenders. The point is whether a new industry shows rapid, lasting growth. If the share of crowdlending increases at the same rate as before, it will be a significant percentage of total SME financing within a few years.
Rob Wolthuis of MKB-Netherlands believes that crowdfunding mainly focuses on "starters, fast growers and highly innovative companies". It is only a matter of time before traditional SMEs will find their way to crowdlending platforms, which will be able to maintain their spectacular growth at the expense of traditional capital providers.’ - Source: Kapitaalopmaat
Risks of crowdfunding
‘The major challenge to almost every entrepreneur is financing. Different sources of business capital do exist in the marketplace unlike in the past when the only source for business financing was traditional bank loans. The business lending space has evolved. Apart from traditional bank loans, there is crowdfunding, equity financing, angel investors, merchant cash advances, venture capital financing, online loans, lease companies, debt financing and factoring to name a few.
It is good to note that venture capital funding runs a huge risk of losing ownership of your company. If you see angel investors and venture capital funding as a way of getting your business idea into reality, you better ensure that the business is lucrative enough to avoid any possible loss of control of your business. As entrepreneurs, you need to have a business back-up source of income in case the cash flow becomes a crisis in the near future.
If you use crowdfunding, there is the aspect of giving back rewards and rewards to your financiers. Getting these reward calculations wrong may prove damaging and in the end leave you with nothing within your business. You may end up giving away too much instead of retaining it in the business. The same applies to merchant cash advance type of financing whereby you may also end up receiving very less from the sales since most of it will be directly be taken away by the merchant cash advance company. To avoid this situation, you have to pen down a business agreement that spells out clearly how the investor will get back their money even if it would take longer than usual for them to get it back.’ - Source: the balance
- Source: Trident Design
‘To find out if crowdfunding is valuable to you as an entrepreneur, you can answer the following questions for yourself.
- Can you clearly indicate what you need the requested loan for?
- Do you have a network of people that can make you enthusiastic about your company?
- Do you offer a clear compensation to your potential investors?
- Can you present your plan in a short time to as many people as possible, both inside and outside your own network?
If you can answer these questions with 'yes', then there is an excellent basis for submitting your loan application.’ - Source: CollinCrowdfund
Salvador Briggman from CrowdCrux: “Crowdfunding comes down to developing relationships at scale. The single best question to ask yourself of your video, marketing, website, and press release mentions is “What emotion does this evoke in the reader or the viewer?” Do they feel excited, amazed, or touched? We buy into the vision of individuals that we feel we know, like, and trust. We buy products that we’re genuinely excited about.” - Source: go.indiegogo
Edited by Eline Ammeraal