I am often asked what Crowdfunding is, whether it is risky and how to get started. Here is a summary of an article I wrote for Startup Smart that is a good introduction to understanding Crowdfunding for your Startup.
What is Crowdfunding?
It’s an increasingly popular way to raise capital for your startup business or project. You can find interested investors through the internet and social media for ‘creative’ returns, such as offering your first product in return for their investment or a discount on your services.
This is a great way to receive funding without giving up shareholding in your company. You can also provide equity shareholding through Crowdfunding – but it’s a bit more complex and triggers some legal issues.
What are the pros and cons of Crowdfunding?
The major pros are:
- Low compliance, which makes it easy and quick to set up.
- Low level of reporting, which saves you time and money on regulatory issues.
- Low funding level for investors, which means your project is more accessible to more investors for, what they may consider, less risk.
The most important cons are:
- Risk of fraud by the project creator, who could abscond with the funds unless measures are in place, which is not always the case.
- Risk of non-funding, where the money is returned to the investors if the minimum level of funding is not reached.
- Risk of bankruptcy or fraud by the Crowdfunding website operator if the funds are not segregated in a separate trust account and creditors may seize your startup funds with it.
Remember, Crowdfunding is not yet regulated in Australia. So make sure you do your own research.
Click here to read the full article by Vanessa Emilio on Startup Smart.