If you don’t have knowledge of financing and don’t already have the available cash to get started, it can be really tough to fund a new business. With small companies struggling to secure bank loans without prior connections, getting the backing of angel investors and venture capitalists is a struggle.
Engage with the industry to understand how others have done it and learn from them. Attend annual industry events which bring together hopeful start-ups who want to collaborate and learn from each other, and success stories who can talk about how they secured funding.
Enter crowdfunding platforms. These enable people with business ideas to take their proposition to the market and attract individuals and businesses to invest in them, with the option of offering equity in the business - “equity-based crowdfunding”. This type of funding raises more per project than any other, and if chosen, the equity share will be given dependant on the amount needing to be raised and the current value of the business.
Launching new products
Businesses can use crowdfunding to help fund production of new products in return for rewards from backers. Rewards can be graded to enable multiple levels of investments, encouraging people to invest more for better and more exciting rewards - for example, investing £10 gets you 5% off a product, and £100 investment gets you 50% off a product.
This is well suited to the rewards-based platforms like Kickstarter and Indiegogo.
If a business isn’t too sure about how popular a new concept will be and doesn’t have sufficient funds for manufacturing, crowdfunding can provide a platform to raise those finances and get the project going.
You can use the platforms to create a route to market without needing your own website in the early days. Although it’s advisable to build your own site to position the brand but if you really don’t have the resource/skills, the crowdfunding platforms provide a ready market place.
Can Crowdfunding Help Retailers?
Crowdfunding is becoming widely popular among established companies, brands, start-ups and entrepreneurs as a means of raising capital for projects, and there are numerous benefits crowdfunding can provide for retailers at all stages of a products development or launch phase. A Crowdfunding project is typically backed, and the majority of cash raised with pre-sale orders of the product offered, and will usually take a cut of the capital raise (usually around 7% to 10%). Compared to traditional expectations of financial sourcing, crowdfunding looks very attractive to consumers. Of course there are additional costs, such as distribution costs etc., but crowdfunding remains an attractive prospect.
Finance retail growth
Maybe your business is already up and running, but you need that extra little bit of funding to take on extra employees and resources in order to grow the company. Retailers are able to take advantage of crowdfunding in order to raise cash to finance this growth where cash flow is an issue; it can be a useful solution to avoid having to go through financial institutions. It’s definitely an alternative option as a finance channel worth considering, as an alternative to lending, provided the pros and cons and costs/benefits have been properly considered.
Increase customer engagement
Marketers covet engagement from their target audience, but the truth is, genuine engagement from your audience is hard to deliver. However, crowdfunding could be the key to this crucial customer engagement: if somebody actively invests in your business they become a major stakeholder in your success. Whether that investment is for a reward or an equity stake, they have committed financially to your business and will become more active and interested in seeing you through to the end of your journey.
The moment your audience commits to you via crowdfunding, they become a valuable stakeholder in your business and this is bound to include major influencers whose voice can be heard and used to help promote what you do.
If someone invests in a retail business, they obviously want to see that business thrive and maintain a positive brand image, and as a result they are more likely to promote the retailer to their friends and family and talk about the business. This could increase the reach and impact of content marketing and social media by providing a ready-made network of brand ambassadors.
So can crowdfunding help retailers? Of course! It’s just important to weigh up all the different financial options including crowdfunding as well as all the pros and cons of using this method to generate income for your business before committing to it (and the stakeholders it will bring).