Gone are the days when people use to worry more about money and less about the entrepreneurial idea that they had. Raising money for business can be a real challenge, but the evolution of technology and its integration into our lives has started a whole new era. No doubt, funding your idea is still one of the hardest tasks even after decades, but new business models are not dependent on how much your savings or earnings are. It has become much bigger than that since the crowdfunding campaigns came into play.
Crowdfunding is a well-known term across the business world and if you haven’t heard of it, you better start taking notes of it. It is the most efficient and convenient way to raise funds for your business and here’s how it goes;
“Crowdfunding is the process of gathering funds of a smaller amount from a large number of people who are willing to support your idea financially.” Crowdfunding can be done through different platforms – social media and some crowdfunding platforms which bring investors and entrepreneurs to one place. Such platforms aim to expand the opportunities of raising funds for your project by letting you reach beyond your traditional circle of friends, family and relatives.
There are three basic ways of fundraising your business. The difference is all about what you give back to the people investing in your idea or in other words what do you offer in exchange for investors’ payments. Depending upon the type of return that your investing parties are expecting, here is a detailed comparison of the pros and cons each type of crowdfunding offers to an entrepreneur. Understanding cost and gains will help you make a better decision on which one to go for when it’s time to raise funds for a new startup.
This is the most practised type of crowdfunding in the world of business. In this type, the investor or the people who are lending you the money acquire a share in your company or business. The new shareholders or “equity owners” as we call them in the business world will get a financial benefit in return for the money they’ll lend you for your business. It makes them a partner in the profit that your business is going to make.
Equity-based crowdfunding has its own kind of gains and losses. Take a look at the pros and cons for a better understanding of equity-based crowdfunding and to decide whether it will worth your time and effort or not.
Reward-based crowdfunding is the cheapest and most common type of raising funds for businesses that offer any particular product or service. Just like equity-based crowdfunding, reward-based crowdfunding is also non-payable funding but the only difference is that you have to pay your investor in form of a product or service.
Apart from the basic difference in return on investment, reward-based crowdfunding is a very unique way that has its own advantages and disadvantages compared to other types. See it for yourself
It’s a no-return way of raising funds for non-profitable purposes. The only return donors gain from this type of fund is the satisfaction to support a greater non-profitable cause. Islam has a lot of elicited teaching to encourage and support such kind of crowdfunding for the needy in and around your communities. One such crowdfunding is zakat and it is known to be the largest donation amount in the world with Muslims donating about a total of half a trillion dollars every year to the one that really needs the money.
Every year at the end of the Holy Month of Ramadan, Muslims roll 2.5% of their money towards the poor and needy people. You can be a part of these donations too if you have a vision of being a voice for those who can’t reach or ask for help. What’s in it for you? You’ll get more than money!
Crowdfunding is entirely different from peer to peer lending or mostly known as p2p traditional financing. To some extent, we can say the two methods of collecting capital are the same where people let you have their money. It’s what happens after is that make these two different.
In crowdfunding, people let you have their money for your business and in return, you are bound to provide them with a benefit except if it is donation-based crowdfunding. In the case of peer to peer lending, it works more like a traditional loan but not by any bank or financial institution which saves both borrower and lender time and a big amount of fees to process and access the loan money.
Compared to crowdfunding, you don’t share the equity or any product or service with the lender of money. It is a simple loan in which you have to repay the payment to lends within a specific period of time and under certain terms i.e. interest and fees and conditions which carries with what kind of platform you are opting to initiate your p2p lending. The p2p lending models in the western world are not compliant with Islamic laws. In Islam, you can use return on your investment but up to a certain ratio or percentage which is Syariah-compliant. Establishing a business under the western model of interest and return is forbidden in Islam as it can sometimes be very demanding and create difficult situations for borrowers especially when the business is not doing well.
So, where to get Syariah complaint p2p lending for your business. MicroLeap is a Muslim initiative to promote fast, easy and Syariah-compliant short-term loans. The platform has filled the gap that traditional banking was ignoring for years i.e. to support small businesses and micro-entrepreneurs. For years, banks have always focused on lending their money to only those businesses that they deem worthy of investment. Small businesses industries were either disqualified from their loan criteria or they were ignored owing to their smile sizes. MicroLeap has given access to all small businesses and micro-entrepreneurs to a pool of lenders who is willing to lend their small amount of money on Syariah-compliant terms and help them grow more.
Whether it’s crowdfunding or p2p lending, the use of technology to avail beneficial services has become a new normal. With the integration of technology, your capital is few clicks away. What about people with greater ideas and less experience in finance and technology? There are a lot of other financing avenues out there to help such people. Here’s the detail of where to get capital from a suitable source for your business. Apart from the advanced technological platform, there are lot of sources to fund your business which works in traditional ways but has more advanced term or operation that best fits the new era of business.
Thanks to the internet and the latest technology, your business can now reach millions of people within and outside your country. Just like your product or service can reach distant countries, crowdfunding camping can make it there too. The Internet offers a wide variety of crowdfunding websites bases on what type of funding you are looking for; equity-based, reward-based or donation-based. Follow a simple two-step guide to make sure your project gets what it deserves.
First off, you need to find a suitable crowdfunding website that works in your country. Fundable, Crowdo and Kickstarter are examples of some renowned websites that are being used by entrepreneurs all around the world and especially in South East Asian countries like Indonesia and Singapore. These websites host hundred and thousands of campaigns of fundraising with new projects being funded by investors who are interested in backing up your idea with money.
You can start an equity-based, reward-based or donation-based fundraising campaign. And the good thing about these platforms is you can do it all by yourself in a matter of minutes. Keep in mind that each platform charges a fee on your collectables it can be a portion or a percentage that depends on what kind of platform you are using. The most important that you must know before starting a campaign is to think through the duration and the amount of your project. If you set a goal collecting a significant amount and fail to reach your goal, the platform will not let you have the amount of money collected at the time when you duration of the campaign ends. Always be realistic about the goals you set on such platforms.
There are few factors that you must consider before starting your campaign on a particular platform. These factors include your location e.g. country, type of crowdfunding you are looking to make, budget and many other. You’ll understand these once you sign up for a website that suits your need. Here’s a list of some popular sites to raise funds for your business.
Next, you need a powerful pitch to convince people to invest in your business. Think of it as you are selling a product or service or the share of your company. Your pitch must have all the essentials to convince your investor. Spare no detail when starting the campaign. State the obvious and be clear on what you intend to do with people’s money and how you plan to give them in return. The more you take people in confidence with your pitch, the better the chances that they are going to pay for your creative ideas.
You can run a campaign for any business idea on the platforms. There no formal restriction on running the crowdfunding campaigns of some specific businesses from these platforms. However, not every business get the same amount of attention or more importantly enough amount of funds as others do. This reason can be explained by changing trends in the real-world market and underlying factors of return on investment, for example, an equity-based project is going to get more funds compared to a reward-based project as financial benefits are long-term and more lucrative to the same amount of investment. You can run a successful business campaign for the following businesses
Technology has been a profitable niche since the era of the internet. The basic technology that was once discovered to get the job done has now become more advanced to look for the best solution to the problem. If there is anything people love to get their hands on immediately is the new technology to ease off their routine both in-home and at the workplace.
Integration of the technology. in financial matters and institutions is something that no one can ignore or deny its presence. Fintech, a name given to technology and finance has a separate stream of technology. Any project that pertains to introducing newly designed technology or developing the existing ones can help you raise larger funds than any other stream of business. Fintech technologies lure more and more investors due to their increasing demand in the modern world. Entrepreneurs can now reach and interact with people who truly understand the essence of their ideas and skills. More and more people are investing in such ventures. It is because most of the folks have realised that demand for this niche is growing up as time passes.
Almost everyone is aware of the fact that property increases its value with time. In other words, you’ll see less often that a piece of land sells off at lower prices than it was purchased. This very trait of the business makes it a perfect candidate for the list of crowdfunding businesses.
One of the reasons the real estate business is more likely to attract people to invest in that building authority of your project is convenient. When running such a campaign, entrepreneurs usually gives a whole feasibility report that mentions all the detail of the project and property itself. For example, if you have to crowdfund a project of 2 houses, you’ll have to provide a detailed document of when the project will start and how long will it take to get a return on the project and most importantly where the project will start. An investor knows all the important dates and events and he can see for himself whether the project is worthy of lending money or not. Here’s how to crowdfund a real estate business on using more advanced platforms.
Reward-based crowdfunding is best for any product or service business type. Such businesses demand much lesser investment compared to other types of business where the fund is generated by equity-based crowdfunding.
You need to launch a product or service that is not already on the market and you believe that it can help make people lives better, what’s any other good way of offering investors to have the product or service subscription for free in return for sparing some bucks to support the product or service itself. This method also works as an excellent marketing tool for your business. The feedback from your early investors can help you develop a product or service to a whole new level and by the time you’ll get hands-on your full sum of capital, you’ll become more and more confident with your business and its product or service.
Ali Haider Shah is a business graduate with specialization in market research. He holds 4 years of experience in business writing where he served renowned online publications like “Digital Diplomacy”. Currently working as a business writer and a market researcher.
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