Crowdfunding is increasingly popular among users and companies who want to finance specific developments, such as Canonical with its Ubuntu Edge. But can it also finance a company as a whole to develop a business startup? Sramana Mitra, a well-known entrepreneur, publishes an interesting article in the Harvard Business Review (Can Crowdfunding Solve the Startup Capital Gap?), in which she explains the reasons why, at least in part, crowdfunding can be part of the solution to the lack of financing. 
Crowdfunding as a Lifeline for Startups
Given the lack of credit and the difficulties that companies face with financing, can crowdfunding become a lifeline for a startup? Does this model make sense to finance a company in the early stages of development? From Mitra’s extensive article, there are several points to highlight that can answer these questions.
A lack of funding leads entrepreneurs to ask for money from family and friends, which can sometimes work out well. Unfortunately, more often than not, the inability of the entrepreneur to return the borrowed money ends up deteriorating the relationship with the well-known lenders.
Accessing Funding Beyond Traditional Investors
The main problem with a business angel or a venture capital fund is that investors usually only contribute to projects with a clear exit strategy or intend to grow on a large scale. Requirements leave more than 90% of companies out of their sphere of influence. All of this is a part of the crowdfunding process.
This does not mean they are companies that cannot generate profits, pay dividends, and be profitable in many interesting market niches. This is where the role of crowdfunding comes in. Betting on companies that can be profitable and in a similar model to what Kickstarter proposes provides benefits in exchange for the investment.
A Vital Boost for Startup Financing
Many companies need between $10,000 and 50,000 to start working. From here, it is much easier to access greater financing opportunities. That is why crowdfunding can have an exciting impact in these early stages of financing. This initial push allows the company to start and obtain future funding from traditional methods.
The main obstacle is that, regardless of the financing formula chosen, the company’s failure risk remains high. Many studies point out that half of companies do not usually survive the first year of life, and only one in ten successfully surpasses the obstacle of five years. If things go wrong, the owner must answer not only to a disgruntled investor but dozens of them.
Evaluating Risks and Rewards
For the individual investor, betting on a company in its early stages of financing is a high risk, and other products in the market present a much safer investment. But if things go well for the fledgling company, the return on investment is usually much more significant than what almost any financial product can provide.
If corporate crowdfunding comes to fruition, it would not be strange to find companies that do a previous “valuation and investigation” on new startups, advising them on what projects the company deserves. It is worth investing and even developing standings about their chances of success.
From Financial Relief to Strategic Growth
Companies pay off all their loans or get access to products and new features by crowdfunding. Under the JOBS Act, businesses sell equity for cash. Specific laws make the equity issuing process strict. This model provides different options, such as $20 million for a smartwatch or $8 million for an Oatmeal webcomic. Crowdfunding helps companies escape a financial crisis, but plans must be made for timeless influence because it is a way to earn profit.
You will have to do a presentation for investors to let them understand the relevancy of your service. Running a successful crowdfunding campaign requires hard work; however, success is not guaranteed. Reward your investors, promote your campaign, and ensure your marketing messages are well-perceived.
Conclusion
In conclusion, crowdfunding emerges as a dynamic solution to the perennial challenge of startup financing, providing a lifeline for fledgling companies grappling with the lack of credit and traditional investor constraints. Sramana Mitra highlights that it offers startups crucial funding in their early stages, paving the way for future growth and development. However, this avenue comes with inherent risks, demanding careful evaluation of potential rewards and investor expectations.
Navigating the complexities of equity issuance and compliance regulations requires strategic planning and execution. Nonetheless, when approached thoughtfully, crowdfunding can propel startups from financial relief to sustainable growth, unlocking new opportunities and charting a path toward long-term success in the dynamic landscape of entrepreneurship.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.