Should you use Crowdfunding or find an investor?

MasterA Level 1

June 22, 2016, 2:18 pm

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Should you use Crowdfunding or find an investor?

I have seen people in the past who wants to start their own business but have no money to fund it and often they have a good idea. Today we will discuss two ways of funding your business. The first one is Crowdfunding. This is where people would donate money to fund the project and often the donations are small as the donators don’t normally get anything in return. The other method is finding investors. This is where the investors would fund the project in return for ownership of a part of the company.

The advantage of crowdfunding is that you don’t have to give away a part of your company but it will take longer to raise funds and people may not donate because they get nothing in return. Some people however, may offer discounts or other perks to donators.

The advantage of finding an investor is that they will fund the whole project and if your idea is good, this is much easier than crowdfunding as there are lots of people out there who are willing to fund projects with potential. The disadvantage is that you won’t own the whole company.

My question is, when you start a website and you don’t have enough money to fund it, would you use crowdfunding or find an investor and why?

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Lynne

Lynne

I think both have lots of advantages and disadvantages. I haven't used either to fund a website though.

I have joined Patreon for my addiction blog and the Youtube videos I do about addiction. Yes I am a drug addict and an alcoholic, 7 years clean.

So how Patreon works is that people pledge money to you when you create content. So either people pledge per video or post you bring out or a monthly amount. So it is based on content being created. This makes it really cool for people with websites to join.

I do think it might be easier to get people to pledge funds to you if you have a cause. I have 3 websites but I only have one that I use for Patreon.

You also need to spend time and effort letting people know you are on Patreon and letting them know that they can be your patron and pledge support. It won't just happen!

8 years ago

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aditya

aditya

Even though both have some advantages & some disadvantages but still crowdfunding is the best option as you are going going to loose any part of your business.

8 years ago

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TommyCarey

TommyCarey

Using crowd funding or an investor to increase funds to launch a business can be good and bad.

The good thing about crowd funding: With crowd funding you can get your idea in front of hundreds or thousands of people wanting to put money into your business idea in order for you to get off the ground. The good in this is that you can get your funds pretty quick and sometimes people don't want anything in return other than seeing you successful later on down the road.

The bad thing about crowd funding: Crowd funding can be great, but it also has it's downsides. The downside of crowd funding is that people may not put in money if they don't think you're offering enough perks or benefits to please them after your service or product is launched. People are usually in it for the money or for free services and products. Usually you'll have to offer your product or service at a bare bones price, usually the cost it takes to produce the product or run the service (no profits for you).

The good thing about investors: With investors you typically only have to work with one person at a time unlike crowd funding where you can be working with a couple hundred. An investor is usually straight forward and gets down to the details. An investor doesn't want to hear what your hopes and dreams are, they want to see what you've done in your business plan and how you can act on it. If you have a detailed business plan and they think that you can make money from your venture, they'll be more willing to invest in your project if the price is right. If you're asking for a million dollars and it only costs $1 to make the product, the investor will laugh at you. Ask for the right amount of money and you'll get it if your plan is perfect.

The bad thing about investors: Investors are in it for the money, that's why they invest. They don't look at something and say "If I make my money back and that's all, I'll be happy as long as the business I'm investing in is alive and well". An investor sees dollar signs when they are looking over business plans, they don't see you. Another downside of getting a private or angel investor is that they may want too much of the company and that could kill your profits and inevitably your business itself. If an investor asks for 51% of the company, look somewhere else. If you give away 51% of the company then the investor can basically muscle you out if you mess anything up. Offering 10% to 25% of your company is pretty typical when working with an investor. You can even set something up where you offer 30% to 40% until the investor gets his/her investment back and then they drop down to only a 10% share holder. Using crowd funding or an investor to increase funds to launch a business can be good and bad. [u][b]The good thing about crowd funding:[/b][/u] With crowd funding you can get your idea in front of hundreds or thousands of people wanting to put money into your business idea in order for you to get off the ground. The good in this is that you can get your funds pretty quick and sometimes people don't want anything in return other than seeing you successful later on down the road. [u][b]The bad thing about crowd funding:[/b][/u] Crowd funding can be great, but it also has it's downsides. The downside of crowd funding is that people may not put in money if they don't think you're offering enough perks or benefits to please them after your service or product is launched. People are usually in it for the money or for free services and products. Usually you'll have to offer your product or service at a bare bones price, usually the cost it takes to produce the product or run the service (no profits for you). [u][b]The good thing about investors:[/b][/u] With investors you typically only have to work with one person at a time unlike crowd funding where you can be working with a couple hundred. An investor is usually straight forward and gets down to the details. An investor doesn't want to hear what your hopes and dreams are, they want to see what you've done in your business plan and how you can act on it. If you have a detailed business plan and they think that you can make money from your venture, they'll be more willing to invest in your project if the price is right. If you're asking for a million dollars and it only costs $1 to make the product, the investor will laugh at you. Ask for the right amount of money and you'll get it if your plan is perfect. [u][b]The bad thing about investors:[/b][/u] Investors are in it for the money, that's why they invest. They don't look at something and say "If I make my money back and that's all, I'll be happy as long as the business I'm investing in is alive and well". An investor sees dollar signs when they are looking over business plans, they don't see you. Another downside of getting a private or angel investor is that they may want too much of the company and that could kill your profits and inevitably your business itself. If an investor asks for 51% of the company, look somewhere else. If you give away 51% of the company then the investor can basically muscle you out if you mess anything up. Offering 10% to 25% of your company is pretty typical when working with an investor. You can even set something up where you offer 30% to 40% until the investor gets his/her investment back and then they drop down to only a 10% share holder.

8 years ago

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EliteWriter

EliteWriter

I love the crowdfunding idea. It is just great that you can reach out to thousands of people who get to see your idea and decide whether they would like to give a helping hand to help you realize it. The choice will depend on the kind of project of course, and crowdfunding is not something that I would use to have funds to set a website probably as it is too generic and I guess there are not going to be that many people who are eager to donate just for yet another site, provided there is nothing that special or unique about it. Getting an investor may not be that easy but I think it is a better option in the case of a website.

8 years ago

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vinaya

vinaya

If you can, you should always look for investors. If you can find an investor, you will not only have someone to give you extra hands for the work, but have an advisor. When you incur loss, you will have some to share the loss with you. Crowdfunding can help you to fund your business, however, you need to have a lot of friends, acquaintances and well-wishers willing to donate for your crowfunding campaign. In most cases, strangers will never make a donation. Crowdfunding is a way to ask money from your friends and family without the liability to pay back. Thus, it is very unlikely that strangers will donate you.

7 years ago

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