6 advantages of equity crowdfunding
Embarking on your entrepreneurial journey? Equity crowdfunding could be your ticket to success. In this article, we delve into the advantages it offers and why it’s a game-changer for businesses of all sizes. From expanding your investor base to retaining control, fast-tracking your funding, and diversifying capital sources, equity crowdfunding revolutionizes the fundraising landscape.
1. Broader pool of investors
For small businesses and medium-sized businesses, a major benefit of equity crowdfunding platforms is they open the door to a much broader pool of prospective investors. Rather than being limited to institutions like venture capital (VC) firms, private equity firms, and traditional lenders, you can raise money from a wide range of individual investors. This includes customers, friends, family, fans, or anyone else interested in supporting your business.
2. Retention of company control
When angel investors, VC funds, and other seasoned professionals invest in a company, they typically invest significant amounts and therefore receive significant stakes. This can dilute founders’ ownership and control over the company. Traditional investors like VCs may also require conditions like taking a board seat, regularly reviewing financial statements, or having a say in management decisions. In crowdfunding, you retain management control and don’t need to give board seats to outsiders.
3. Potential to raise money more quickly
Loans and VC deals can take months or even years to complete. Equity crowdfunding sites make it possible for you to go from underfunded to fully capitalized in as little as a few weeks. Online platforms make it easy for your backers to help you attract funding by mentioning your campaign to friends and acquaintances or posting about it on social media.
4. Diversification of capital
When you crowdfund, you automatically diversify your sources of capital, making you less dependent on any single source of funding. If a single, individual investor decides not to participate in a future round of fundraising, it matters less because many others may be willing to participate. In contrast, if a bank lender or VC backer declines to provide additional funding as your business expands, your business might be headed for trouble.
5. More opportunities for non-tech companies
Crowdfunding platforms can help a wide array of businesses access capital. VC backers often prioritize funding early-stage companies in the tech industry that they believe have outsized growth potential. This means they pass over businesses that may have strong growth prospects but none of the buzz associated with tech.
6. Avoids debt and interest expenses
Borrowing to fund your business means taking on the obligation to repay the debt as well as incurring periodic interest expenses. Interest payments can drain your business’s resources, making it harder to achieve profitability. Depending on the type of debt, you may need to come up with a large lump sum payment when the debt matures.
In a world where innovation knows no bounds, equity crowdfunding stands out as the beacon of hope for businesses seeking financial backing. With a broader investor pool, maintained company control, rapid fundraising, diversified capital, and opportunities for various industries, it’s the solution you’ve been waiting for. Say goodbye to debt and interest expenses and hello to a brighter future for your business. Crowdfunding is the way forward!
Source: Shopify
