Crowdfunding platforms like Kickstarter and Indiegogo are increasingly common for startups, but this is not the only funding source available. This article will explore how crowdfunding can be detrimental to your business and what traditional sources of funds should be considered instead.
With an understanding of these disadvantages, you’ll be able to make better decisions about whether or not crowdfunding is right for you.
You might not reach your goal
This is the most considerable risk associated with crowdfunding – you might not raise enough money to meet your goal. A study by Kickstarter found that only 44% of projects reached their fundraising goals. This could leave your business in a difficult position, as you’ll have to scramble to find other sources of funding.
You might give away too much equity
When you raise money through crowdfunding, you’re often giving away a portion of your company in return for the funds. For example, if you raise $10,000 on Kickstarter, you might have to give up 10% of your business. This can be a risky proposition, as it reduces your ownership of the company and leaves you with less control over its future.
Crowdfunding is time-consuming
Creating a crowdfunding campaign takes a lot of time and effort. You’ll need to develop a compelling story, make videos and pitch materials, and reach out to potential backers. All of this takes time and energy that could be better spent on your business.
Crowdfunding can be a bad idea for your business, especially if other funding sources are available. If this is the case, you should explore traditional financing options to ensure that you have the necessary money to begin operations and grow your company.
Alternatives to Crowd Funding
There are several other options available for businesses seeking financing. Listed below are a few of the most common:
- Angel investors -Angel investors are individuals or groups who provide capital to young or early-stage companies in exchange for ownership equity. The advantage of trying this route is that angels are often more willing to take risks than other funding sources, and they can provide valuable mentorship and advice.
How do they get their investment back? Angel investors can often be paid back by a percentage of the business’ profits.
- Venture capitalists -Venture capitalists are individuals or firms that provide money to high-growth startups in exchange for a stake in the company. Venture capitalists are especially interested in businesses that have significant growth potential, so this source of funding might be the perfect fit for your company.
Venture capitalists typically receive a portion of corporate profits or sell their shares for an agreed-upon amount when the company goes public.
- Personal Loan – If you have a good credit score, you might be able to secure a personal loan in Singapore from a bank or other lending institution. This type of loan can be used for various purposes, including starting or expanding a business.
The interest rate on a personal loan is typically higher than other types of loans. Still, it can be a valuable source of financing if you have the financial history required to qualify.
- Business Credit Card – In some cases, a business credit card with a low introductory interest rate might be a better option than a personal loan. With this type of loan, you’ll receive a credit card associated with your company’s name and tax ID number. As long as your card is used for business purposes, you can often pay it off with a percentage of future profits.
- Self-Financing – If you have the money to invest in your company, this might be the option that works best for you. You’ll want to determine how much capital is needed before making any decisions. Some entrepreneurs choose to self-fund their businesses by putting their own money into operations. This can be a risky but rewarding route, as you’ll have complete control over your company’s future.
- Friends and Family – If you don’t want to give up any ownership of your company, friends and family members might be the best option for social media marketing funding. This group is typically more willing than venture capitalists or angels to invest small amounts in a business they know and trust.
However, you should only consider this route if you’re confident that you’ll be able to pay them back promptly.
Final Thoughts
Crowdfunding can be a great way to secure financing for your business, but it’s not the only option available. If you’re looking for a fast and easy way to get started, this might be the perfect choice for you.
However, if you have other funding sources available, you should explore those options before going the crowdfunding route.
