In this era that relies heavily on technology and the internet, both SME business owners and startups and other business initiatives need funding sources.
To be able to consider it, crowdfunding could be a very relevant solution. Please note that crowdfunding comes from the words “crowd,” which means crowd, and “funding,” which refers to collecting funds.
Thus, crowdfunding is a method of raising funds that involves financial contributions from many people to support an activity or business.
In Indonesia, one of the pioneering crowdfunding sites This platform has provided assistance to various foundations, social institutions, and individuals who need funds to complete their projects.
Historically, crowdfunding was first introduced in the United States in 2003 through the ArtistShare site.
This site aims to help musicians get funds to produce their works. Between 2014 and 2016, the popularity of crowdfunding continued to increase with the emergence of more than 2000 platforms, raising around 60 billion US dollars in funding.
Crowdfunding itself has become popular for several reasons, including accessibility, ease of use, a means of investment diversification, and as a financial innovation.
Several reasons make crowdfunding one of the schemes for collecting initial business capital that is quite popular today.
So, to better understand how crowdfunding works, the benefits, advantages and disadvantages, types and differences, risks, and get to know IDO (Initial Dex Offering) in crypto and its relationship with crowdfunding, see the following review.
How Crowdfunding Works
For your information, crowdfunding involves two main pillars, namely the existence of a website or platform that can be accessed by the public and, of course, capital owners.
The venture or business you want to fund will be registered on the crowdfunding platform, where the information will be published so that potential funders can invest in your business while helping to develop it.
The process of collecting funds usually takes several days to reach the specified target. Once the funds are collected, they can be disbursed to the business owner’s account. However, there are several steps that can be taken to optimize this process, namely:
1. Make a Proposal
To attract the interest of potential funders, prepare an attractive, interactive, and informative business proposal. This proposal should include complete information about your business type, management process, marketing strategy, and main business objectives.
Use various formats, such as text, images, or video, to convey information clearly and interestingly.
2. Register with the Crowdfunding Platform
Choose a crowdfunding platform that is trusted and has official regulations to ensure transaction security. Make sure the platform is reputable and has been proven to help successful projects in the past.
3. Monitor Proposal Progress
After uploading the proposal, it is important to continue monitoring the progress of the funding process. If there are questions from potential funders, provide short, concise, and clear answers. This will build the trust of funders and increase their likelihood of investing in your business.
What are the Benefits of Crowdfunding?
Apart from providing easier access to a wider network of funders, crowdfunding also offers a number of benefits.
The following are the benefits of crowdfunding that are important to know, including:
1. Doing Marketing
Raising funds through crowdfunding allows you to start marketing activities through various channels, such as social media, email, and other marketing strategies. This will help accelerate the collection of funds through crowdfunding platforms.
2. Wider Reach
Crowdfunding platforms facilitate the search for people interested in supporting fundraising projects in various regions. Through crowdfunding, interaction and collaboration between fundraising campaigns become easier.
3. Opportunity to Introduce Business
Crowdfunding gives you the opportunity to introduce your business or fundraising project by providing in-depth information. You can highlight the business’s appeal, unique offerings, target market, and company values. This helps potential investors understand the project and its development better.
4. To Develop Funds
Crowdfunding allows individuals, businesses, or projects to raise funds from a number of people, usually through an online platform. This will provide opportunities for people who need capital to develop their business ideas or projects.
5. Can determine the funding system for the business
Crowdfunding allows business owners to choose a funding system that suits their needs, whether through the sale of shares (equity crowdfunding), interest-bearing loans (debt crowdfunding), or funding through gifts or products (reward crowdfunding). Business owners have control over the type of funding provided. they choose.
6. Business can be accepted more quickly by the target market
Through crowdfunding platforms, businesses or projects can reach a wider audience more quickly. By presenting their ideas or products in an attractive way, they can gain support and potential buyers from their target market efficiently.
Advantages and Disadvantages of Crowdfunding
Knowing the advantages and disadvantages of crowdfunding is very important for all parties involved, whether they are entrepreneurs looking for funding or investors who want to invest. Here are some advantages and disadvantages of crowdfunding that are important to know, including:
1. Advantages of Crowdfunding
Online Accessibility
Crowdfunding allows flexible business funding because it is done online. Potential investors can easily apply for funds through crowdfunding platforms. Fundraising procedures and future agreements are carried out through crowdfunding sites, saving time, effort, and costs.
Attract Potential Investors
With crowdfunding, the chances of meeting suitable investors increase. The more unique and interesting the business idea offered, the more people are willing to invest. Potential investors can easily understand your business through crowdfunding platforms, opening up opportunities for them to make profits.
Competitive Interest Rates
Crowdfunding offers competitive interest rates for business people. In contrast to banks or traditional financial institutions, crowdfunding charges a flat interest rate, usually between 6.48% and 17% per year, providing flexibility and clarity for business owners.
2. Disadvantages of Crowdfunding
Limited Scalability
Crowdfunding generally only results in one round of funding. Therefore, careful business planning is required, including calculating funding needs after achieving initial goals. Entrepreneurs must carefully consider how the business will run once this funding phase is complete.
Inflexible Projects
Once terms and conditions are agreed upon, it is difficult to make major changes. Significant changes usually require investor approval and can affect your business and investors’ interests. Therefore, a realistic business design and careful planning are very important to avoid unwanted losses.
Types of Crowdfunding and Their Differences
Getting to know the types of crowdfunding and their differences is very important because each type of crowdfunding offers different benefits and risks.
A good understanding of these differences can help entrepreneurs choose the right crowdfunding model for their needs and help investors understand the type of project or business they are investing in.
The following are the types of crowdfunding and their differences, namely:
1. Donation Crowdfunding
Donation crowdfunding is a type of crowdfunding that collects funds through donations. Usually used for social purposes such as natural disasters, social institutions, or helping people in need.
If you want to use this type of business, make sure the business is related to community welfare so that people are willing to make donations to help the business develop.
2. Crowdfunding Rewards
Reward crowdfunding is a form of funding where rewards are used to attract investors. Even though it is similar to equity crowdfunding, the difference lies in the form of profit offered.
Investors are given rewards in the form of offers such as discounts, exclusive memberships, free trial services, and so on. With this reward, investors feel involved in the initial development of the business.
3. Debt Crowdfunding
Debt crowdfunding is a type of crowdfunding that is similar to money lending services. The process involves borrowing money, which can then be repaid with incentives. In general, debt crowdfunding is similar to peer-to-peer (P2P) lending.
The difference is that crowdfunding involves funds from donations involving business owners, funders, and platform providers.
4. Equity Crowdfunding
Equity Crowdfunding (ECF) is a form of funding in which business owners offer company shares to investors. This model is suitable for raising large amounts of money.
In the ECF system, business owners offer company shares with a certain target fund within a specified time period to investors via the platform used.
Funds will be recorded whether they have reached the target or not, in accordance with the platform’s provisions. In the end, business profits will be divided according to the portion of funds provided by investors.
Get to know IDO (Initial Dex Offering) in crypto and its relationship with crowdfunding
IDO (Initial Dex Offering) is a new funding method in the crypto ecosystem that deals with the initial offering of crypto tokens through a decentralized exchange (DEX) platform. As the name suggests, IDOs are a way for crypto projects to issue their tokens through decentralized exchanges.
IDOs allow investors to lock funds in a smart contract right before a project launches its native token. When a project releases its tokens, investors are given new tokens in exchange for the funds they have locked up, which are then transferred to the project upon token creation.
Many projects have achieved great success using this model. For example, Battle Infinity recorded a price increase of 700% from the presale price through its IDO. Users can view the list of upcoming IDOs on CoinMarketCap.
Apart from that, the site also has a list of current and planned token offerings. CoinGecko also regularly updates its list of popular launchpads.
It is important to know that IDO’s relationship with crowdfunding lies in its basic principle, namely allowing new projects or crypto startups to get funding from investors by giving them new tokens in return. However, IDOs differ from traditional funding methods and Initial Coin Offerings (ICOs) because they use a DEX, which allows direct transactions between buyers and sellers without a central intermediary.
Conclusion
In conclusion, crowdfunding is not only a current funding method but also a future funding tool that provides opportunities for various businesses and projects. The success of crowdfunding depends on the business owner’s creativity, clarity of idea, and ability to attract potential investors.
After successfully getting funds from crowdfunding, the next step is crucial for the success of your business. Several steps can be taken after getting funding from crowdfunding.
These include managing funds wisely, focusing on executing business plans, communicating with investors, product innovation and development, marketing and expansion, sustainable approaches, and evaluating and measuring performance.
By taking the steps above carefully and diligently, the funds obtained from crowdfunding can become a strong foundation for the future growth of your business.
