Startup Guides > Is Crowdfunding Right For Your Small Business?

What is Crowdfunding?

Over the past 10 years, crowdfunding has emerged as a popular tool for individuals to raise financing for business ventures.

Entrepreneurs typically raise small amounts of money from a large number of backers, or "the crowd," usually via the Internet. Backers receive some sort of reward or, less commonly, an equity- or royalty-based financial return. Crowdfunding platforms - including Kickstarter, Indiegogo, and GoFundMe - have raised billions of dollars, and the industry is still growing with niche service providers such as 40Billion which focuses on crowdfunding promotion for small businesses.

For small and new business owners looking to raise capital, crowdfunding is an increasingly popular option. Unlike with debt financing, entrepreneurs are not evaluated based on the 4 C's: Cash flow, Credit, Customers and Collateral. Rather, your access to capital is based on your existing reputation and your ability to effectively market the crowdfunding campaign. Backers decide whether to fund the campaign based on their interest in and support for the cause, for the individual business leader or because they want to buy the product/service being offered. For startups or businesses launching new products or entering new markets, crowdfunding may be more accessible than other forms of financing. It is also a great way to test the market for your product because many funders are also generally interested consumers...