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Will Crowdfunding Revolutionize Startup Financing?

The Potential of Crowdfunding to Revolutionise Business Financing

The potential of crowdfunding is vast, promising to revolutionise the business investment industry as its popularity increases year-on-year at an incredible rate.

According to a study commissioned by the World Bank in 2013, the global crowdfunding industry could reach up to $96 billion within the next ten years, surpassing the expectations of the venture capital industry almost twice over.

What is crowdfunding?

Crowdfunding offers an opportunity for both investors and entrepreneurs to explore business financing outside the traditional channels. Harnessing the power of social media, crowdfunding sites give new businesses, entrepreneurs and inventors a platform upon which to attract investment in exchange for equity in the business or idea.

As traditional banking channels remain cautious with lending, crowdfunding offers an opportunity for a rapid expansion in entrepreneurship across the world with the potential for a far wider investor audience, and visibility becoming an option for those in countries where it would traditionally have been unlikely.

The idea of crowdfunding is simple, yet potentially transformative in terms of business funding, with entrepreneurs able to attract large numbers of investors of relatively small sums to fund the launch of a new idea, or improve the cash flow of an existing business for considerably lower rates than banks are prepared to offer.

In some instances, investors are able to finance a business by making a purchase of goods in advance according to their stake, which is pre-determined by the entrepreneur. For example, a craftsperson creating hand-made wooden furniture is able to offer for sale the items in advance, giving the investor the opportunity to buy. The benefit of making advance sales for the craftsperson, and the return for the investor, is clear from the start.

Crowdfunding websites and platforms are creating an alternate world of financing, and are thriving in an economic environment that is still in the early stages of recovery on a global scale. Where banks are remaining cautious in their investment decision-making, crowdfunding’s potential is increasing, and the platforms themselves are attracting investment.

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