Startup Capital: Traditional or crowdfunding?

When it comes to launching a new business, raising funds can be a significant undertaking. However, with the convenience of multiple options ranging from crowdfunding to business loans, it’s not completely impossible. What can be overwhelming, though, is choosing the right funding option for your mission. Today, one of the most popular ways to raise startup funds for a new business is crowdfunding, but is it right for everyone? Let’s take a brief overview of crowdfunding vs taking on a more traditional funding strategy.

What is crowdfunding?

Crowdfunding is an unconventional type of fundraising that leverages small to mid-sized donations from a wide range of supporters to fund an objective, typically via the internet. Although the first documented example of crowdfunding occurred in 1997 when a British rock band collected donations from fans to support their US-based reunion tour, it’s become a heavily embraced form of nonprofit and startup business fundraising ever since.

What are key benefits of crowdfunding?

So what’s caused crowdfunding to go mainstream among new business owners?

  • Crowdfunding campaigns are usually free to launch with most top crowdfunding websites, meaning you’ll conserve most of the funding for your objective.
  • It’s a great approach for raising awareness for your project or organization as well as securing first-time donations from new supporters.
  • Being extremely social media-friendly, crowdfunding can get your campaign in front of thousands or even millions of eyes, and sharing on social is great for supporters who can’t contribute financially to still be involved.

Drawbacks of crowdfunding?

It’s important to remember that no fundraising strategy is going to be perfect. Before making a decision, consider the possible drawbacks of crowdfunding:

  • The majority of crowdfunding donations are smaller, typically less than $100.
  • Success in crowdfunding is heavily dependent on the platform you use, and a weak choice can lead to a poor user experience as well as a loss of potential donations.

What is traditional fundraising?

Traditional fundraising can comprise many different approaches, from benefit events and corporate sponsorship to mass media marketing or even business loans. The origin of charitable giving goes back as far as hundreds to even thousands of years ago, although many acknowledge the YMCA as introducing the first “modern” fundraiser, as we know it today, in the early 1900s. Though over time, a lot has changed in the nonprofit and fundraising industry. While many organizations are seeing increasing value in progressive and online fundraising strategies like crowdfunding, in-person and face-to-face fundraising efforts still play a role in long-term success.

Benefits of traditional fundraising?

So why do traditional fundraising methods continue to thrive? 

  • Traditional fundraising donations are often larger and more significant than crowdfunding contributions.
  • Traditional fundraising can be a more engaging and thus, create a memorable experience for donors.

Drawbacks of traditional fundraising?

On the flip side, these fundraising strategies come with their fair share of drawbacks as well.

  • Traditional fundraising approaches can be expensive, meaning a higher percentage of your revenue will go towards covering overall investment costs.
  • These forms of fundraising require extensive time and effort from staff and volunteers, which can be difficult with limited manpower.

Overall, organizations continue to see significant advantages from traditional fundraising tactics even as new online methods emerge. However, having the right tools and a comprehensive plan in place can go a long way for maximizing the results of your organization’s fundraising efforts.

Choosing a fundraising strategy

Now that we’ve considered the pros and cons of both crowdfunding and traditional fundraising methods, it’s clear why pursuing the right fundraising campaign can be a challenging undertaking. So how do you know what option is right for you?

As a rule of thumb, aim for what will appeal to and engage your donors by serving specific audience’s wants and needs. If you know your audience is digital savvy and will easily jump on board with new tools and trends, consider crowdfunding as an interesting way to raise money quickly for your program. If your audience is more old-school, it might be best to put more focus towards traditional fundraising campaigns like direct mail appeals and in-person requests.

As new fundraising procedures continue to grow and evolve, it’s important to always be researching innovative ways to build and support your organization. However, you don’t want to overlook those long-established methods that have proven to help new businesses launch a strong brand and position themselves for success. The best solution? We recommend leveraging crowdfunding campaigns combined with more traditional fundraising methods to expand contribution revenue and better finance your project.

Ready to Learn More About Your Project?

We hope you will give us the opportunity to work with you and watch your online success grow. Contact us today for a consultation and quote.