Benefits of Crowdfunding

The Many Benefits of Crowdfunding

Crowdfunding is a fantastic tool for generating early stage funds for all types of enterprises, including nonprofits, social enterprises, startups, and small businesses. There are many easy-to-use platforms and the legal requirements for launching a crowdfunding campaign are minimal (see this article on crowdfunding laws for nonprofits). But the benefits of crowdfunding go beyond simply raising funds. This article discusses several of the benefits of crowdfunding, including demonstrating proof of concept as a means to raise money from professional and institutional investors.

Raise Seed Capital

One of the most important, and well-known, benefits of crowdfunding is to raise much-needed money. Specifically, crowdfunding has proven to be a very successful means for early stage entrepreneurs to raise the money needed to bring their service or product to market. As just one example, last year Hub Oakland blew their $100,000 goal out of the water and raised over $140,000 to open a shared workspace in Oakland for community leaders and social entrepreneurs. But there are other benefits of crowdfunding beyond raising money.

Test Market and Messaging

Crowdfunding is an easy way to see if your idea for a new service or product will get traction. When you put out a call for funds from friends, family, colleagues, and the public at large through a crowdfunding campaign, you can quickly see if your presentation is an effective way to push your idea. Additionally, you can experiment with different means for getting your message out. For example, you can explore whether your idea should be sent out through emails, social media, paid media, earned media, or other methods. But note the potential legal consequences of sending targeted email blasts if you are a nonprofit organization.

And if you find that the funds simply are not coming in after trying different messages and different avenues for getting your call for funds out, you can see at an early stage that you may not have a clear idea of the need for your product or service (better to learn this early than after investing too much time and money).

Gain Network of Support and Raise Profile of Enterprise

By asking people to provide you funds early on, you are asking folks to buy in and believe in your idea. Entrepreneurs should view this early buy-in not as simply a source of funds, but as a good indication of an ongoing network of support. Although the SEC has yet to pave the path for companies to offer equity to supporters in a crowdfunding campaign without complying with extensive securities regulations, the supporters of an enterprise should be thought of as investors who want to see the enterprise succeed. Crowdfunding supporters provide a great opportunity to raise the profile of your enterprise by having them be messengers for your awesome new idea – make them feel empowered and proud to be a part of your enterprise.

Demonstrate Proof of Concept and Minimum Viable Concept to Investors

One of the huge benefits of crowdfunding is the impact that it can have on attracting investment from institutional or private investors. Investors prefer to invest in ventures that have a high likelihood of success. There is no better way to show an investor that the enterprise will be successful than demonstrating that you have done each of the things discussed above: you have raised seed capital, you know your market and have already identified your audience, you have a polished message that has proven effective, you know the avenues to push your message out, and you have a crowd of support. Investors always talk about wanting to see “proof of concept” – a successful crowdfunding campaign demonstrates an incredibly powerful proof of concept to investors.

Get in touch with us to discuss a funding strategy that will work for your enterprise.


DISCLAIMER: The information in this article is provided for informational purposes only and should not be construed or relied upon as legal advice. This article may constitute attorney advertising under applicable state laws.

Ryan Shaening Pokrasso

Ryan is an attorney who believes that business can be a powerful tool for social change. Ryan's practice focuses on assisting entrepreneurs with entity formation, startup financing, securities regulation, employment issues, business transactions, intellectual property, non-profit organizations, data privacy, and governance.

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