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Crowdfunding a Business Venture with Angel Investors

By Chantal

For a brand new business that has no prior history,getting funds from a conventional lender is quite difficult. Most of the banks in the world disqualify start-ups from getting loans. Even though it does not seem fair, it should be noted that banks are conservative organisations. Nevertheless, that is not to say that you can’t get funding for your start-up business. You will always find a way to fund your business venture if you have the following;

  • A compelling business plan;
  • A positive vision;
  • Courage; and
  • Charisma.

One of the major ways of crowdfunding a business is with angel investors. For the last few years, the demand for crowdfunding has rapidly increased. Angel investors have also become interested in crowdfunding investment returns. This has motivated them to invest in business. This is quite a big deal that shows the potential in crowdfunding for small businesses that are in need of money to launch and grow.

Crowdfunding is a specific way for businesses, charities, and people to raise money. It operates thanks to organisations or individuals who invest in crowdfunding business ventures in return for a potential profit.

If a person or a company needs to raise money through crowdfunding, they can tone for it by posting the details of their business, or project idea on a crowdfunding website. By so doing, they will avoid going to a bank. The ‘Crowd’ used in crowdfunding refers to the organisations or people that provide the necessary amount of money for your business venture. These people are also referred to as Angel investors.

Types of crowdfunding                                                               

There exist many types of crowdfunding:

Investment-based crowdfunding

This is a type of crowdfunding were you invest in a business and receive normal shares as crowdfunding investment returns.

Loan-based crowdfunding

This is a type of crowdfunding were you lend money to companies or individuals in return for a set interest rate which represents the crowdfunding investment returns. This type of crowdfunding is also referred to as peer-to-business or peer-to-peer lending. The whole idea here is that people who want to borrow money are matched to those who want to lend it. It is one of the best form of borrowing and lending between individuals without any traditional financial institution like a building or bank society involved. With it, if you want to borrow money, the peer to peer website will match you up with someone who is ready and willing to lend it to you. The companies behind these services are referred to as platforms that act chiefly as intermediaries between lenders and borrows. Generally, they offer lower interest rates than traditional loans. However, this will solely depend on certain factors like your credit rating. The best deals are available for those with an excellent credit history and no previous problems. A credit reference agency will check your credit history in a detail manner whenever you apply for a loan. Peer-to-peer lending has the following advantages:

  • They represent another option for those who fail to get a loan from a bank;
  • A good number of peer-to-peer websites have no minimum loan amount as compared to most banks. This makes them suitable for those in need of small amounts of money; and
  • At any time you need to borrow money, peer-to-peer loans can tend to be cheaper than building societies or banks especially when you have a good credit rating.

However, peer-to-peer lending also has some disadvantages as shown below:

  • If you have managed your finances poorly in the past or have a poor credit rating, you will find difficulties in obtaining a loan;
  • Even if your business venture is not fully funded, you will have to pay a fee to the platform that arranged the loan. This means multiple fees for those who have to apply for more than once;
  • Depending on your credit rating, crowdfunding investment returns can be higher relative to banks; and
  • You might not be offered same protection using peer-to-peer platforms as if you were using other ways of borrowing.

Crowdfunding investment returns in peer-to-peer are fixed depending on how much of a risk you can support.

  • Your interest rates could be as high as 30% if you are attributed a bad credit history record; and
  • If you have a very good and interesting credit record, you can borrow at an interest rate of 3%. The crowdfunding investment returns are low in this case because you do not represent a risk in the eyes of the angel investor.

It is easy to apply for a peer-to-peer loan if you want to invest in business or grow your business. All you need to do is to visit a lending site and register there. After registering, you can select the amount you want to borrow and over what term. From there you can see if you are qualified for a loan and capable of paying the interest rate. If you request a loan to invest in business, you might be granted less or at different interest rates from others depending on the platform and your credit history. Some individual lenders and peer-to-peer platforms are regulated by The Financial Conduct Authority. This means that if you write any complain because you are unhappy about any service, the company has eight full weeks to sort it out. If after the eight weeks are over and you are still unhappy, you can freely ask the Financial Ombudsman service to get involve. The Financial Ombudsman are in possession of official power to resolve any unhappy situation between you and the company. There are some important things to be aware of before applying for a peer-to-peer loan;

  • If you fail to payback your debt, the company can likely pass the case to a debt collection agency which might likely end up in court; and
  • If you miss payment date, it will affect your credit rating. This will tend to your disadvantage in the future.

Donation-based crowdfunding

This is a type of crowdfunding were an Angel donates in the name of charity to a person. At times the person receiving might promise to do something in return.

Reward-based crowd funding

In this type of crowdfunding, you give money in return for a reward linked to the cause you are supporting.

A lot of people ask how does crowdfunding works. It works quite well! Without quitting your day job, you can entirely run a very successful crowdfunding campaign. Your entire success in obtaining a crowdfunding loan from Angel investors is based on preparation and planning.

Step 1: Make clear goals

How does crowdfunding works? This is a question you should find an answer to before starting your campaign. This will help you know with certainty why you need money; how to properly ask for it. Several Angel investors want to feel that they are part of something important. They want to know that their money will play a significant role in accomplishing a particular goal. Angel investors crowd fund for several reasons;

  • To part take in new business ventures;
  • Causes they care for;
  • Support projects;
  • Assist people they care for; and
  • Make crowdfunding investment returns.

Step 2: Research and outline all your goals

You need to be quite clear about what the money will do, this is to justify and support your goals. If you plan using the money for personal causes, make sure you outline clearly how the money will be used. In addition, bring out the impacts the money will have.

Step 3: Present your goals

If you are in to commercial ventures, make sure you sketch graphs where necessary. Put down in writing an estimate budget for your campaign.

Step 4: Research crowdfunding itself

Once your plan has been established and everything budgeted, you should find out crowdfunding sites on the internet. Compare and contrast all that you meet and get the best you can find with the lowest interest rate. It should be noted that maintaining a good credit history will be of great importance in easily obtaining a loan at a low interest rate.

Step 5: Choose the Platform to use

There exist about a hundred platforms that are ready to lend money; to invest in business or boost the business. You are offered the possibility to choose that which suits you best. However, for commercial projects, the two outstanding crowdfunding sites are Indiegogo and Kickstarter. Some sites generate up to 12 million dollars a year for personal causes. Indiegogo is a smaller site that can display your business more prominently on their newsletter, homepage, and social media outlets. Kickstarter is quite popular and are more concerned in funding creative ideas. At times it tends difficult to make it onto their homepage because of high traffic.

Step 6: Propose to offer rewards

A lot of people don’t often give out of kindness especially when it has to do with commercial ventures. Thus, rewarding contributors serve as an excellent motivation tool. By so doing you cause the potential donors to think, ‘’ that’s great I need it’’. You can decide and reward them with a taste of the product you produce. Make sure you factor shipping in the cost of the rewards.

Step 7: Comply with the estimated delivery date

The majority of campaigns don’t deliver on time. But that’s bad. Always remember new projects always take longer than anticipated. So you should select a date that gives you plenty of time to meet your commitments. Also remember if you do not meet on time, your credit rating is affected. This might make it difficult for you to get loan in feature to invest in business.

How does crowdfunding works is a question that has recently gained pronunciation on the lips of almost all entrepreneurs. It has to do with carefully persuading individuals in a convincing manner to give you donations of small and high amounts. You will end up with some serious cash at hand after receiving from thousand donors. Its popularity has highly risen over the past years thanks to a proliferation of websites that permit non-profit organizations, musicians, artists, and businesses to raise money for the execution of their plans. Crowdfunding represents the social media version of fundraising. According to the research from Massolution, there exist more than 600 crowdfunding platforms around the world, with fund raising that can reach billions of dollars annually.

How Crowdfunding Works

To answer the question on how does crowdfunding works, it should first be noted that most common type of crowdfunding fundraising is making use of sites like Indiegogo and kickstarter variety. In these sites, donations are sought in return of special rewards. This could likely mean a chance in designing the product or using a free product.

Crowdfunding can easily be used to assemble royalty and funds. It makes it quite easy to invest in business. The LendingClub is a crowdfunding site that allows her members to borrow and invest freely among them. They do so with claim that eliminating the middleman bank can allow both parties profit. Today, royalty financing sites appear to be rarer. However, the whole idea has to do with linking Angel investors with business owners who need money to invest in business. This answers the question that how does crowdfunding works. These Angel investors lend money for a guarantee percentage of revenues to whatever service or product the business is selling. This is what comes in as the crowdfunding investment returns.

Upside: Crowdfunding by Angel investors provide another strategy which tends to be quite effective in taking startups and small companies to the next level. At first, a business owner was subjected to embrace a bank loan officer. It is no longer the case now, were you can pitch a business plan to the masses. All successful crowdfunding do not only provide your business with the necessary amount of cash for its start or development but also create a base of customers who feel as if they had a stake in the business’ success.

Downside: If you are not in possession of a consisting story to tell, your crowdfunding would likely turn into a failure. A well secured site like Kickstarter do not collect money until a specific fundraising goal is reached. However, so many find it a waste of time which could be used to grow the business in another way. It could possibly turn worse if you meet your goal but realise that you underestimated the amount of money you needed. This would likely lead to a business risk of being sued if it made promises in return for donation and later fails to deliver. Nevertheless, bank officers and angel investors provide just more than money. They can also provide entrepreneurs with vital advice in succeeding in business.

Factors to ensure a successful crowdfunding campaign

It is important to have at least a small network of enthusiastic family and friends who are ready and willing to give thereby urging others to. If you decide to give perks in return for money, always make sure the perks are quite cool. Always present a serious and reasonable business plan explaining why and how the money will take your business to the next level. Always demonstrate that your own skin is into the business through the personal funds you have already tipped into the business. If possible include a short and concise video pitch that gives a call to action. You should be ready to live online until the crowdfunding campaign is completed. It is quite important to have at least 30% of the money you are seeking already raised before you go to the crowdfunding sites to seek for additional funds from Angel investors.

The risks involved in crowdfunding

Crowdfunding is relatively a new concept and investing in young businesses can likely be quite risky. The main risks are;

The return is not guaranteed

The shares might not end up rising in value.                         

The business you invest in might collapse

A lot of new businesses fail in the first few years. This means that you can likely lose all your money.

Selling the shares might be difficult

All shares are normally unlisted meaning it would be difficult selling them.

The crowdfunding platform can collapse

This can possibly tend to a failure on your site if you paid money to the website but haven’t received funds for starting or promoting your business.

Reducing the risk of crowdfunding

It is always advisable to invest only money that you can afford to lose. You should not invest more than 10% of any money you have available for any yearly investment. This will protect you from losing all you have.

Secured startup companies that you can invest your money today in

A lot of people have the money but are afraid of wrongly investing it. Others have but do not know the right places to invest in. The young and old alike seek new companies to invest in so as to attain money freedom. It is clear that not all companies you invest in are capable of standing the test of time. For this reason, all entrepreneurs should seek for solid new companies that can stand the test of time before investing in.

Trucking company

This is one of the new companies to invest in that is highly profitable. For every business owner, it offers reliable returns on investment. You’ll likely find this business model competitive and capital intensive due to its high profitability. The positive mindset that would lead you to success and a mile from the others is first starting as a business owner and later progressing to a trucker. You will realise that as a business owner, your success does not only revolve around your trucking business. You shall realise that it is merely a tool to achieve your goals of profitability. You are called upon to prepare yourself for every case-event if you want to succeed in the trucking company. An example is the case where a truck is involved in a road accident. This often tend to be the most expensive scenario experienced by truckers.

Drop shipping company

One of the new companies to invest in is the drop shipping company which is the new ecommerce of millennial. All you are required to do here is to create a professional ecommerce website using a SaaS platform. Your virtual store will assist customers purchase items on your website, once done, you simply forward your buyer’s information to the product seller. The product seller in turn will have the goods shipped to destination. This company has established a lot of big income earners who started merely with 1,000 dollars. So many who carry out this activity testify there is no risk for you losing your money.

An E-learning website

For people to become successful in life, they have to study. A lot of information they might likely need to brush their skills and excel might not come from formal education. Such students will always pay a premium to acquire knowledge. The quest for such sites are gaining a high demand in the market - making it one of the best new companies to invest in. You can focus on the following highly profitable online learning areas;

  • Writing: Magazines are paying as much as 1,000 dollars for an article from a good writer;
  • Programming: The demand for software has highly increased in both smart phones and laptops. If you can programme well then you can make enough cash;
  • Fashion: You can build a site training dressmakers and fashion models.
  • Digital Marketing: The need for business owners to acquire some forms of digital marketing skills has increased. If you provide a site with such information, you will make enough profit; and
  • Cooking: A good number of modern couples might not be interested in the traditional way that people cook. This creates demand for a site which teaches modern cooking and how to prepare different delicious meals of their choice.

Ecommerce

There is just no doubt that ecommerce is one of the best new companies to invest in. You can merely begin by partnering with companies that are in possession of products they want to sell. Your online start would quickly gain ground and attract many customers by having them make a discount. Investing in an ecommerce business necessitates a lot of attention. With ecommerce, you should not expect reaping profits immediately. Even the ecommerce giant amazon took a while before reaching a state of profitability. You should always take for your starting point for any ecommerce activity a low-cost digital marketing strategy. An example is quest blogging.

Customer-order service business

This is one of the new companies to invest in that caters customers who want their products made for them.

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