Crowdfunding isn’t all about cash
To keep up with consumer needs, businesses have to grow quickly. One of the biggest challenges is funding that growth, especially for startups with limited resources. Getting a traditional bank loan or VC investment certainly isn’t an easy process, and self funding is a very slippery slope. Through crowdfunding, businesses can sidestep more complex forms of financial aid, but it isn’t just about the money. By completing a successful crowdfunding round, companies can connect with customers on a new level.
Unlike other forms of funding, crowdfunding campaigns ask a large number of people for small, individual contributions. It’s about putting as many eggs in as many baskets as possible, rather than relying on one or a few sources. One of the major advantages of crowdfunding is that it creates a community of supporters. This helps to drive the brand forward by providing a customer base, and letting those customers actively buy into its success. Crowdfunding campaigns act as a form of marketing, raising awareness about the aims of a company and piquing curiosity. Another interesting advantage of crowdfunding is that it also offers a form of market research, as the company or individual running the campaign can gauge how much support they have, and perhaps even where that support comes from (if investors are not anonymous). Raising capital might be the overall goal, but engaging with existing and potential customers is another huge benefit.
The downside of crowdfunding is that there are no guarantees. The success or failure of a campaign rests entirely on whether the public believe it is worth investing in. On top of this, it can literally take years for a crowdfunding campaign to reach its target. But when used well, crowdfunding has the potential to turn an idea into a movement.
Crowdfunding success stories
This month, digital bank Monzo proved that crowdfunding isn’t always a slow burner. In two days, two hours and 42 minutes, the bank hit its £20m target in the biggest crowdfunding round ever completed by a UK FinTech company. Customers were invited to make investments of between £10 and £2,000, buying into what is now the UK’s most popular bank and a unicorn to boot. Another example of successful crowdfunding is Daisy Green, an Australian restaurant chain based in London. Daisy Green started out as a street food trader at markets and festivals. Following a £2m crowdfunding round on Crowdcube that smashed their original target of £500,000, the chain now has nine London based locations with a view to launch eight more.
Monzo was able to benefit from crowdfunding because it is a non traditional, customer centric bank. Daisy Green did the same because it hit on an unmet need in the London eatery scene. But crowdfunding isn’t just for startups. In fact, at the beginning of the year, research conducted by Cowgill Holloway suggested that crowdfunding is the most popular search term for UK business funding, overtaking ‘business loans’. This shows that companies have recognised the merit of crowdfunding, and are interested in making it work for them. Any business can use the funding alternative to engage with their customers, but only if it complements their strategy.
Crowdfunding is as much about making a connection as it is about making cash. What’s more, that connection can lead to better insights about customer bases and how supportive they are. Through crowdfunding, companies can accelerate their growth at the same time as building a loyal community of supporters. The key is making sure that customer-reliant funding works with the ethos of the company… If it doesn’t, consumers will keep their hands firmly in their pockets.
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