Crowdfunding can simply be defined as the practice or act of funding for a specific project by intentionally raising funds from a large number of people(most especially, the members of the general public).
The practice is usually done via the internet to out to more people and gain more financial support from them.
Crowdfunding is known to be an old system of generating funds most especially for entrepreneurs but over the years, it has been associated with some typical disadvantages, for example, some people use the practice to raise funds for their selfish gain, fraudulent activities, and even for fake treatment and aids.
Hence, in some cases, it may not be considered as helpful or effective.
What Are The Advantages And Disadvantages of Crowdfunding?
Business Crowdfunding is a better way to raise funds to initiate a new business idea or brand or project and such practice helps to increase engagement between the audience and the initiator(s).
But there are certain advantages and disadvantages associated with the process associated with the practice. So, you should think about them before you take action.
Advantages of Crowdfunding
There are some advantages of crowdfunding for small startups and below are some of them.
It increases exposure
This is one of the benefits startups get to enjoy from the process of crowdfunding.
It doesn’t only improve the exposure of the business but also the engagements between the initiators and the general public.
It creates room for opportunities
This is also another major benefit in the sense that in the process of crowdfunding the business may be lucky to get great investors and good competent backers to join in the business project.
Hence, not only creating opportunities but also enhancing the business growth and development.
It encourages engagement through feedback
In the process of crowdfunding, the start-up business enjoys the benefit of engagement through feedback and reviews from their audience.
And Feedback enables businesses to know what they need to do to improve their customer service.
Disadvantages of Crowdfunding
As much as there are several advantages of business crowdfunding, there are also some disadvantages and effects it may bring as well, and below are some of them.
It may breed scammers
One of the disadvantages of this practice is that it is prone to fraudulent activities and scammers.
Some businesses/people use it to extort money from the general public for unnecessary reasons.
Process duration takes time
Crowdfunding is not as easy as many people think and the process can be tedious and stressful.
Hence, leads to slow response and results.
Sometimes it may take a longer time to conclude the whole process of crowdfunding and in most cases, crowdfunding usually yields reputation risks.
It can lead to reputation risks
This is one thing you do not wish for as a person or as an owner of a business.
A bad reputation may damage your business brand and whatsoever thing related to it.
And that is why it is advisable to map out the whole process before jumping straight into the practice of crowdfunding for your business to avoid a bad reputation.