Most of the economies are seeing a throng of entrepreneurs trying to make their way in businesses by venturing into new ideas. For these new ideas, they also seek new investment models that favour their projects and funding needs. Crowdfunding has emerged as a leading funding mode for such entrepreneurs for the following simple reasons:
- Cost of funding: The costs of availing funds to jumpstart even a small project can be higher than the actual fund requirement for that project if considered in the short run. The expectations of the investors are high and that builds a pressure on the innovator, thereby impacting the performance. For small entrepreneurs, the underperformance impacts the returns and the repayment of the funds raised – thereby building up the tension further. This does not happen with crowdfunding. The costs are not as high as in other investment modes.
- Fund Accessibility: Although the requirement of funds can be small, they are not easily accessible. There are multiple reasons for this – bank loans are meant for relatively bigger project sizes, so this option gets ruled out. The other lenders require credibility or guarantors – which is a difficult task for new entrepreneurs. Even if they are able to get some backing or endorsements, the time taken to get the funds is big. This is very much unlikely in crowdfunding. Here, the investors are those who already believe and are convinced with the business idea. Therefore, they voluntarily fund for the project.
- Liability: With traditional type of funding, the liabilities of the entrepreneur always increase. The liability can be to pay off the interest on the amounts till the principle amount is repaid, distribute the profits to the different stakeholders in case of equities, etc. The point intended to be drawn here is the fact that any method of funding requires the entrepreneur to payback the amount raised along with some interest or additional amount in lieu of using the money given in the beginning.
The traditional methods generally involve a single mode of fund raising wherein you need to rely on a single investor. If that investor shows disinterest at the time of starting the project or backs out of the deal, then the project goes for a toss. This can be avoided through crowdfunding. In this mode, there are multiple backers for the project idea. Even if a couple of them change their sides, it will not impact the execution of the project.
These are some of the precise reasons why many budding entrepreneurs prefer crowdfunding for their projects. There are many other reasons as well. This model helps in easily availing the funds. Along with this, it also helps in understanding the market feasibility of the targeted product or the service. All this definitely makes crowdfunding a superior fund raising model for the innovators – the small new entrepreneurs. With limited costs, liabilities, ownership dilution, intervention and ease of access, crowdfunding is climbing up the charts of the entrepreneurs.
This article is written by the Crowdfunders Editorial Team. Crowdfunders.Asia is Asia’s leading portal on crowdfunding, property, start-up and business related news operated by CoAssets.com. CoAssets.com is South East Asia’s first real estate crowdfunding site. If you have any Crowdfunding news or stories to share, please email [email protected] .