When making plans to raise funds for your business you may want to consider crowdfunding. Crowdfunding is a method of funding that is done by convincing a large pool of individuals to donate small amounts of money towards a project or venture.
In recent years, the concept of crowdfunding has been embraced by entrepreneurs and investors across the globe. Popular crowdfunding platforms for African entrepreneurs include JumpStart Africa, Thundafund, LelapaFund, M-Changa, Funda Solva and many others.
Raising business capital from different sources is a great idea but it comes with both its benefits and challenges. Below are four benefits and challenges of crowdfunding:
Benefits
- Crowdfunding makes it possible to raise smaller amounts of capital from different sources, rather than huge amounts from a single investor. When the amount is smaller, it is easier to commit people to donate funds to your business.
- It reduces the risk of depending on one angel investor or financer that may bail out on your business idea.
- Crowdfunding provides a platform for entrepreneurs to pitch business ideas to a crowd of people that could be converted into customers.
- Having funds from different sources reduces the influence of an investor over a business. If the business capital is from one source, the business owner is tied down by the terms of the investor.
Challenges
- Crowdfunding can be time consuming and distracting because entrepreneurs must constantly engage their target audience with creative crowdfunding campaigns.
- It may take longer to meet your target capital when raising small amounts of money on crowdfunding platforms.
- Crowdfunding makes an entrepreneur answerable to a lot more people, and it could result in legal implications if the expectations in return for donations are unmet.
- While having funds from different sources reduces the influence of one investor, it may also translate to unnecessary bureaucracy for the business. The entrepreneur may need to consult or seek approval from more people in order to make an important business decision.
Crowdfunding isn’t for everyone and it is important to weigh both the advantages and disadvantages, and determine whether it is the best approach for you in raising capital for your venture.
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