Financing can be one particularly challenging part of starting a new business, but it’s a challenge that entrepreneurs tend to embrace. With investment comes risk, and allaying concerns that make investors reticent can be a tricky aspect of securing the funds you need to lay a foundation.
Crowdfunding has become an increasingly popular way of getting around some of the traditional challenges of financing. Essentially, through platforms like Indiegogo and Kickstarter, business owners are limiting risk by avoiding debt and not giving a piece of the business to investors. Of course, not all projects are suited for a crowdsourcing platform, but the method can be used to fund certain moving parts of a company.
For example, consider the crowdfunding campaign run by a burger café not far from the Utah State University campus. A co-owner admitted that Kickstarter probably wasn’t the best way to fund the construction of the building where the restaurant is located. However, he did use Kickstarter to raise money to pay for the restaurant’s wood interior.
Not only can a crowdsourcing campaign raise money; it can generate interest and customer engagement prior to the opening of the business.
A professor at the Clark Center for Entrepreneurship pointed out that crowdfunding also helps business owners avoid debt and avoid giving up equity. Essentially, services and products can be sold prior to their being provided or made.
Of course, no matter how you get your financing, you’ll need the appropriate business structure and legal strategy that protects against possible pitfalls.
Source: Utah Public Radio, “Crowdsourcing: The Future Of Small Businesses?” Elaine Taylor, April 11, 2014