Attracting investors to fund your software business isn’t always easy. Thankfully, modern technology has provided a quick and effective solution via crowdfunding platforms. You can easily distribute an intended fund over a crowdfunding platform and attract a large number of investors in several ways as equity crowdfunding, reward crowdfunding, donation-based crowdfunding, debt crowdfunding, real estate crowdfunding, and renewable energy crowdfunding. ‘Equity crowdfunding’ and ‘reward crowdfunding’ sound complicated, but they aren’t. They’re both simple and straightforward ways to get a large number of people to give you a large amount of money for your business. In this article, we’re going to teach you, exactly how to distribute a fund through a crowdfunding platform.
First off, we have to define equity crowdfunding. Equity crowdfunding is a unique way to raise the capital you need for your business. It involves using a crowdfunding platform. Your crowdfunding platform will be used to distribute your capital needs to a large number of investors, who’ll provide you with the money you want.
Crowdfunding, in general, is when the public invests money in an enterprise or cause for ideological or monetary gains. Equity crowdfunding is a specific business model where you collect money from a large number of private investors.
These investors could invest as little as $100 in your company. But, if 100 people provide you with $100, you’ll have $100,000, which is likely enough to meet your capital needs. But, what do you give the investors in return? Why, simply, a stake in your business, of course?
Equity crowdfunding is very similar to the stock market. The major difference is that you control the price of admission. Also, the benefit of equity crowdfunding is that it works best for small businesses that can’t really attract large investors or venture capitalists.
So, equity crowdfunding is the right choice for you if you’re a small business owner.
Is equity crowdfunding legal?
Equity crowdfunding is a completely legal but highly regulated way of attracting investment for your business. Despite not giving customers any shares, you’re still opening them up to many risks, so the government is concerned about equity crowdfunding. So, they’ve set up many regulations and rules for it.
You should just consult with a lawyer about the legal requirements of opting for an equity crowdfunding solution. As long as you don’t violate any legal requirements, you’ll be good to go.
How does equity crowdfunding distribute a fund over a crowdfunding platform?
You have to follow the government’s rules to realistically achieve your goal. But, assuming you do that, you’ll have successfully distributed your fund requirements over a crowdfunding platform. How?
It’s simply because you’ll attract a large amount of money from a large number of people. Most people’s individual contributions will likely not be that great, so your funds will be widely distributed from their source.
What is Reward Crowdfunding?
Reward Crowdfunding is when you provide non-financial rewards to your investors in exchange for their investment. For example, you could give investors early access to your software, or you could give them merchandise, like T-shirts and hats.
The entire idea behind reward crowdfunding is to transcend the need for monetary awards and provide investors with something additional, too. Reward crowdfunding is particularly great for niche projects where the chances of market success may not be as high as conventional businesses.
Some of the advantages of reward crowdfunding include the fact that it lets you differentiate yourself from similar campaigns. Providing a non-monetary benefit is an extremely powerful way to earn the interest of investors.
How do I successfully complete reward and equity crowdfunding?
The same way you’d finish any other crowdfunding campaign. You need to win over potential investors with the quality of your marketing and the products you provide. Investors will willingly give you their money as long as you’re able to satisfy their desires.
For equity crowdfunding, you have to ensure that you meet legal regulations and have the right resources to earn the confidence of your investors. For reward crowdfunding, it’s vital for you to be able to convince investors that the rewards you’re providing are enough to satisfy their needs.
Equity and Reward Crowdfunding platforms
You can perform reward crowdfunding with virtually any platform. In contrast, equity crowdfunding is highly legally regulated, and you need access to the right platform to perform an equity crowdfund. You can’t just use common crowdfunding platforms like Patreon or Kickstarter because the Security and Exchange Commission does not regulate them.
Some of the largest and most reputable equity crowdfunding agencies include WeFunder, Fundable, and SeedInvest. You can easily use any of these platforms to complete your equity crowdfunding journey.
Using one of these platforms ensures that you’ll be able to distribute your funds by having your financial needs met by a large number of different investors, who’ll each invest a small amount of money.
Other ways to distribute a fund through a crowdfunding platform
Reward and equity crowdfunding are, by far, the two best ways to distribute a fund through a crowdfunding platform. But there are additional ways too, like real estate, donation, debt, and renewable energy crowdfunding.
Real Estate Crowdfunding
It is a type of crowdfunding to raise capital through small/individual investors for real estate investments. Real estate dealers and professionals have an eye to look for suitable opportunities, but sometimes they might be short of capital or they don’t want to fund the entire investment then they turn to real estate crowdfunding and finance the project through a pool of investments. The benefit of such investment is that people can invest without the hassle of managing, owning, and legal responsibilities. Real-life real estate investments might be risky and expensive, while real estate crowdfunding can help mitigate your risk.
Donation-based crowdfunding has been one of the most successful ways to help those in need. The idea is to get people to donate small amounts and help those in need. In such funding schemes, the funder usually gets nothing. Some of the best examples of donation crowdfunding are GoFundMe, Kickstarter, RocketHub, etc.
Different Uses of Donation-Based Crowdfunding
There could be several uses of donation-based crowdfunding.
1. It can be for the food, medicines, and infrastructure of places affected by natural disasters (floods, earthquakes, storms).
2. It can be for the relief of families of victims, or victims themselves.
3. It can be for recovery or rescue missions for missing persons.
4. It can be for homeless people, their shelter, or food.
5. It can be for buying a vehicle for a needy person.
Donation-based crowdfunding is also used by influencers nowadays as they share inspiring and sad stories of people who can be helped with their follower’s money.
It is a type of crowdfunding usually used by startups looking out for loans. The crowdfund serves as capital for the businesses and the amount is to be returned to the investors over time with interest. This process helps the business owners get funds which would be difficult through conventional bank loans. For debt crowdfunding, the businesses should have good future cash flow statements that indicate their ability to repay. While there are several benefits as reaching out masses, getting funds without traditional hassle, and lesser interest rates, however, the obligation to repay despite of business performance is a con of this scheme.
Renewable Energy Crowdfunding
Renewable Energy Crowdfunding has attracted web users in the recent past because of the amazing potential and innovation this industry is opting for every day. Many individuals participate in renewable energy by funding the components of the gear used to create energy or by investing in their equities. The well-aware investors are investing in the niches as
1. Solar energy
2. Wind energy
3. Mixed energy
5. Hydro etc.
Ultimately, all crowdfunding campaigns are not fundamentally different from each other. It’s all about successful marketing in the end.