The Benefits of Crowdsourced Funding

For the past three years, private companies in Australia have been allowed to receive financing through crowdsourced funding (CSF) in exchange for stock in the business. This method has enabled aspiring entrepreneurs in a wide range of industries, including music, fashion, financial services and fintech, property development, and health to realise their goals and get their enterprises off the ground.

The Corporations Amendment (Crowd-Sourced Funding For Proprietary Companies) Act 2017 (Cth) made it all feasible. Prior to this regulation, proprietary companies could only raise cash via CSF through donation-based funding (from people who supported a business’s goals and objectives) or rewards-based funding (e.g. through the pre-sale of a product, project or future service).

When compared to more traditional forms of business finance, CSF has several notable advantages. Initially, there is potential for a considerably larger pool of potential investors for a proprietary firm, and while raising finance is the primary goal, CSF can also provide a significant boost to a company’s visibility and brand awareness, validate your business, grow your customer base, and more.

It’s more efficient than traditional fundraising.

Anyone who has created a business will tell you that it can be exceedingly difficult in the early stages to find the time needed to pursue finance while still focusing on the company’s week-to-week growth. CSF is a relatively efficient and effective technique of gathering seed financing, as opposed to applying for a bank loan (which may not be available to an early stage firm) or if a company is unable to attract or does not have the networks to reach accredited investors in the early stages. Once the best CSF platform has been found, the company’s path and goals may be pushed through that centralised location, making it reasonably easy to find like-minded investors.

It hedges risk.

Starting a business is a risky and difficult endeavour. Aside from getting sufficient finance, there are always expenses that are impossible to predict, challenges in market validation, and other people who want a piece of your enterprise in order to help it get off the ground.

Launching a crowdfunding campaign mitigates these risks while also serving as an useful learning experience. Crowdfunding, in its current form, allows an entrepreneur to get market validation while avoiding giving up ownership before going all in and bringing a product concept to market.

Instant feedback, interaction and community

CSF also provides an excellent opportunity to hear from possible investors in real time. Their inquiries and suggestions can help shape the company’s future while also providing insight into what is vital to the people who are prepared to fund the business. Potential CSF investors’ feedback can help to avoid the need for costly consultation services. By getting direct feedback from the “crowd” that is interested in the start-up, the company may change and evolve to meet the needs of its target audience.

CSF, more than any other kind of fundraising, brings a company closer to its consumers and enables a much more direct alignment of values and shared goals between the firm and its investors.

It serves as a marketing tool

Because it is a free and quick means to reach multiple channels, an active crowdfunding campaign is a wonderful way to introduce a venture’s overarching objective and vision to the market. Many crowdfunding sites include social media techniques, making it simple to drive visitors to your website and other social media pages. This usually results in thousands of organic visits from unique users and possible investors. These individuals are especially vital for viral marketing because they may share and spread the information to their contacts.

A good feature story or a Twitter mention can have a powerful snowball effect, connecting you with major investors you might not have met otherwise. A successful crowdfund is a terrific method to attract fresh investor interest, whether they read about your new product on a prominent blog or hear about your unique campaign from a friend.

Once your page is up and running, you can use a variety of marketing methods to significantly boost the amount of people you reach (and how your product is perceived). You can learn search engine optimisation (SEO)   to help your page rank better for relevant online searches, make videos that demonstrate how your items function, or even use paid advertising to spread the word about your company. There is virtually no constraint here.

Plethora of choice

You have access to a plethora of crowdfunding platforms. If you don’t like one, look for another. You’ll also have a number of options for structuring your campaign, such as which prizes to offer at what levels of participation.

Legal obligations

While there is no doubt that there is a lot of interest in CSF raising, the process is not without its difficulties. Businesses engaging on a CSF raising must check numerous boxes and fulfil a number of duties.

Proprietary companies and potential CSF investors must be aware of factors such as:

• Business eligibility requirements for accessing CSF facilities;
• Record-keeping – including regulations governing electronic member registers;
• Shareholder agreements or a modified company constitution;
• Potential development of separate share classes;
• and Director appointments and provisions for director removal.

To prevent unwittingly breaching the law, enterprises should seek the opinion of professionals before going on a CSF round. Due diligence is necessary for shareholders to guarantee awareness of all commitments, whether contributing to a business is a decision motivated by the heart or the intellect.

In summary, crowdfunding is a great way for entrepreneurs to get the capital and attention they need to validate, execute, and develop their businesses. What began as a social experiment several years ago has since been validated as a useful tool for thousands of individuals. Crowdfunding has raised more than $1.5 billion to help start and grow businesses at all stages. With the industry continually evolving and getting more efficient, there is no better time than now to reap the rewards!