Until very recently, financing a small business was often dependent on soliciting a few lenders for large sums of money in hopes of generating start-up and venture capital, but today many small business hopefuls are turning to the internet to generate the funds they need to launch their endeavor. This process is known as crowdfunding. Crowdfunding is an investment platform which allows entrepreneurs to seek financial support and build a community for their brand by utilizing social media platforms to find and engage potential funders.
Through crowdfunding, entrepreneurs and small business owners have an opportunity to appeal directly to small investors and their public, who are able to contribute any amount they desire. This model also allows all of the investors in a project, product, cause, service or experience share in the risk and rewards of investing in new start-ups.
According to data from the Crowdfunding Centre, a resource for investors and start-ups, there are two primary variations on the crowdfunding platform.
- Reward-based crowdfunding– In this model, entrepreneurs will pre-sell a product or service to launch a business concept without incurring debt or sacrificing equity/shares. For example, if a chef is looking to finance their very own restaurant they may choose to offer free meals and other rewards to public investors.
- Equity-based crowdfunding– Equity crowdfunding is more closely aligned with traditional investment platforms in which the financial contributor receives unlisted shares of a company, usually in its early stages, in exchange for their money pledged. For example a new software start-up might opt to allow investors to share in their profits and financial successes through this type of crowdfunding. In these situations, a company’s success is often determined by how successfully it can demonstrate its viability.
Financing your business can be a challenge no matter how you chose to find investors, but once you do it is crucial to develop a plan to help protect everyone’s investment in your operation. At Sinclair Risk and Financial Management, we specialize in helping businesses of all shapes and sizes develop strategies that will help preserve your operation’s balance sheet and increase overall profits. Our trademarked Risk Safeguard Advantage combines uncommon risk analysis and strategic risk management with human resources consulting and training to provide businesses with measurable, sustainable results. Our CT Business Insurance experts can even help you secure commercial polices specifically designed to protect your business and your assets from any mishaps your operation may face along the way. Give our specialists a call today at (877) 602-2305 to learn more about all the services we offer.