Crowdfunding is one of the alternative ways to get funding for your new business that has become more mainstream thanks to platforms like Kickstarter.
“Crowdfunding is the new bank loan, without the pressures of repayments,” says Nicholas Dilley of South African crowdfunding platform Thundafund.
“Crowdfunding is an online method of fundraising that allows people across the globe to put their ideas or pitches onto a digital platform. These pitches are then available for people worldwide to see, and to decide whether they want to support the campaign.”
Crowdfunding consists of four main categories, namely: Rewards-based, donation-based, equity-based, and debt-based. Each of these options have their own aims and purpose.
Rewards-based crowdfunding offers backers a reward for contributing to the project. “These rewards can vary, anything from a thank you card to a tangible product. However, when selecting rewards for your campaign, it is important that you keep your project and potential backer in mind,” says Dilley.
Some campaigns offer exclusive content to those who backed their campaign, something that won’t be released when the product goes to stores.
Another potential way to fund a small business is through donation-based crowdfunding. Sites such as Kickstarter and Indiegogo, give people and creative projects the opportunity to raise money through online donations or pre-purchasing of products or experiences, according to Forbes.
Contributors don’t become investors or shareholders, and don’t participate in any financial returns. On both the above-mentioned platforms, project creators retain 100% control over their products and services.
Equity-based crowdfunding is another option when looking for new business funding. How it works is: Members of the public are offered equity/shares in a business in exchange for funding. Your company then uses that funding to kickstart your business.
“Essentially, the crowd will be a business partner with the start-up, and in so doing, the first customers of the start-up are already waiting in the wings,” says Daniel Van Zuydam, attorney at Dommisse Attorneys.
This crowdfunding option, also known as peer-to-peer lending, is essentially where contributors lend money to businesses with the expectation that it will be repaid with interest.
Here are a few local and international crowdfunding platforms to get you started:
South African crowdfunding platforms include:
The top international crowdfunding platforms include: