Crowdfunding Techniques for Bootstrapping Companies

Crowdfunding Techniques for Bootstrapping Companies

Starting and growing a start-up company from scratch can be a daunting and expensive task, especially for those with limited funds or resources. Bootstrapping companies usually need to find creative and alternative methods to acquire the necessary capital to scale their business. Crowdfunding has proven to be an excellent tool for bootstrapping companies to raise capital. This article discusses some crowdfunding techniques that bootstrapping companies can use to raise much-needed capital.

1. Rewards-Based Crowdfunding

As the name suggests, rewards-based crowdfunding involves offering rewards to those who provide capital to a company. Companies set a minimum financial goal, and donors are offered rewards that correspond to the size of their contribution. This type of crowdfunding works best for startups that have already established a product or service with a large following.

Platforms such as Kickstarter and Indiegogo offer rewards-based crowdfunding, and they have been successful in raising funds for many startups, including tech companies. Offering early access to products or personalized experiences for top donors can help motivate backers to contribute and generate additional buzz around a startup.

2. Equity-Based Crowdfunding

Equity-based crowdfunding allows startups to sell small percentages of their business to a pool of investors. Unlike rewards-based crowdfunding, investors receive a financial stake in the startup, and the amount of funding is tied to the company’s valuation. This crowdfunding technique can be ideal for companies looking to expand at an aggressive pace and those seeking large amounts of capital.

Platform such as SeedInvest and Republic are popular equity-based crowdfunding platforms. While equity-based crowdfunding may be a more significant financial burden than other crowdfunding types, it offers companies the possibility of securing substantial contributions while potentially creating lifetime investors.

3. Peer-to-Peer Lending

Peer-to-peer (P2P) lending provides bootstrapping companies with a chance to borrow from investors at lower interest rates than traditional funding mechanisms. This form of funding is best suited for companies with revenue projections that require short-term loans or debt financing.

Platforms such as LendingClub and Prosper provide lending services matching startups with interested investors. P2P lending allows companies to reach investors outside of traditional banking channels, opening up the possibility of funding from individuals from different regions and jurisdictions.

4. Donation-Based Crowdfunding

Donation-based crowdfunding is a mechanism for bootstrapping companies to raise funds without offering rewards or returns to investors. Instead, companies set up a crowdfunding profile that encourages donors to contribute to their business. This type of crowdfunding mechanism works best for companies with a mission or cause that donors can easily support.

Platforms such as CrowdRise and GoFundMe are examples of donation-based crowdfunding platforms. Companies that have social good initiatives or provide products or services to underprivileged communities are best suited for this type of crowdfunding.

Conclusion

In conclusion, bootstrapping companies can benefit significantly from crowdfunding as a means of acquiring funding. Crowdfunding offers startups the platform to request support from individuals and groups outside of traditional funding channels. By using the various crowdfunding techniques to their advantage, bootstrapping companies can raise the capital they need to scale their businesses, build strong credibility, and acquire the necessary resources to achieve their growth objectives. Remember, whichever crowdfunding mechanism a company chooses should be based on the specific business requirements and long-term vision.