Crowdfunding Analysis: Assessing the Pros and Cons for Entrepreneurs

This essay provides a comprehensive analysis of crowdfunding, exploring both its advantages and disadvantages as a method for raising capital. The positives discussed include fast access to capital, establishing a market, market validation, developing a marketing strategy, and control over rewarding investors. Conversely, the negatives cover the significant amount of work required, limited capital suitability, potential loss of money if targets are unmet, and the risk of reputation damage. The essay concludes by emphasizing the importance of considering these factors when deciding whether crowdfunding is the right approach for a particular business idea.

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Introduction
Crowdfunding involves raising money for a business idea or the business through using
social media platforms and the internet to reach out to people (Micic, 2015). The donations are
made through the online platforms. An entrepreneur evaluating if crowdfunding is the right way
to raise capital should consider this positives and negatives of crowdfunding.
The Positives
These are the benefits of crowdfunding
i) Access to capital
Crowdfunding offers fast access to the funds raised. The campaign usually lasts for a
maximum of 90 days, meaning, there is less pitching, negotiating and prospecting as it is the case
in the traditional system. There are no upfront fees paid, and no equity is needed. In its place,
you place an offer for investors through reward-based incentives.
ii) Establish a market
It is difficult for a new business to find customers. However, crowdfunding helps to
establish a customer base for the business (Ennico 2016). Investors involved in offering capital
create a reasonable basis for the market. Due to the large number, crowdfunding reaches to; there
is the possibility of attracting more customers as well as engage with potential clients.
iii) Market validation
Crowdfunding is an essential aspect in evaluating how the public reacts to your business
idea. Finding investors who are interested in investing, is a good sign that the idea will do well in
the market. This reduces the risk of introducing the product in the market for the first time.
iv) Develop a marketing strategy

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Crowdfunding helps to sell the concept of your business idea to other people apart from
getting funds. Capturing the interest of investors to contribute to the funds, will help to develop a
positioning strategy in the market to get new customers.
v) Gives control to rewarding investors
In crowdfunding, the entrepreneur has the full control of how to reward the investors
after receiving full funding. The amount of interest to offer investors is up to the entrepreneur
unlike in traditional means where the bank decides on the amount of interest accrued.
The Negatives
Running a crowdfunding campaign has certain shortcomings, and it might not be the right
idea. Some of the drawbacks include
i) Requires a lot of work
Crowdfunding requires prior preparations for about three months to get the campaign
running. It takes about a minimum of 15 hours weekly to prepare for the campaign. Time and
money are needed to prepare customers, get investors and publish the project before setting up
the campaign to raise funds (Green 2014). Failing to hit the target might mean a failed campaign.
ii) Limited capital requirement
Crowdfunding is not viable for a business idea that requires a significant amount of
money. The projects funded through crowdfunding require a capital of less than $100,000. A
business idea attracting more than that may require other sources of funding.
iii) Loss of money, if target not met
In the case of failure to achieve the set target in the campaign, crowdfunding leads to the
loss of funds, back to the investor and nothing goes to the business (Steinbeirg 2012).
iv) Reputation damage

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Failure of crowdfunding is likely to damage the reputation of the business as well as lose
the trust of the investors.
References
Ennico, C. R. (2016) The crowdfunding handbook raise money for your small business or start-
up with equity funding portals. New York, NY, AMACOM. Retrieved from
http://search.ebscohost.com/login.aspx?
direct=true&scope=site&db=nlebk&db=nlabk&AN=795578 (Accessed April 13 208).

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Green, C. H. (2014) Banker's guide to new small business finance, + website: venture deals,
crowdfunding, private equity, and technology. Retrieved from
https://www.bloomberglaw.com/browser/105.518456 (Accessed April 13 208).
Micic, I. (2015) Crowdfunding: an overview of the industry, regulation, and role of
crowdfunding in the venture startup. Retrieved from http://search.ebscohost.com/login.aspx?
direct=true&scope=site&db=nlebk&db=nlabk&AN=1006996 (Accessed April 13 208).
Steinbeirg, D. (2012) The Kickstarter Handbook: real-life crowdfunding success stories.
Philadelphia, Quirk Books