Startup businesses and entrepreneurs are constantly looking for creative ways to raise money, meet, goals, and grow their businesses, without having to acquire significant amounts of capital and other resources. The two most effective ways startups are accomplishing this today is through crowd funding and venture capital funding methods. So what is the difference between the two?
Beat the Crowd with Crowd Funding
Crowd funding methods have made a huge impact on small, startup businesses to the smallest, craziest idea—such as making a potato salad—to funding a full-fledged tech startup firm. One of the main reasons why crowd funding is so effective and popular is because many startups have embraced the opportunities to reach right to their target audiences and provide them with a valuable service or product for sampling in exchange for a few dollars that count towards a startup’s overall campaign.
The reason this is so effective is because of the social aspect. It’s informal, it’s valuable, and it reaches real people, the people that startups market and sell to. In fact, it’s proven that many female entrepreneurs and female-owned and operated startups have been more successful with crowd funding because of the effectiveness a social presence can have on a business.
Regardless of whether your entrepreneurial goal is to market or to raise funding for an incredibly unique and crazy project or launch and get your business off the ground, crowd funding has certainly proven successful for many entrepreneurs and their startup projects.
The Venture Adventure
Venture capital funding works a little bit different…or does it? Venture capital involves seeking and attracting official investors to sponsor your business or project through the selling of private shares. This is more of a “formal” approach that can be challenging and a little complicated. There are also a number of legal steps that a startup business needs to take in order to properly his or her business as well as any assets that may be accounted for in the process. Potential investors also want to ensure that their investments are protected should your business fail.
So what is the upside to venture capital? One of the main benefits to acquiring venture capital through traditional investors is that a business can often acquire larger lump sums of money in order to grow and develop quickly since it is easier for businesses to acquire the initial startup resources they need.
All in all, the venture capital route is effective, however, it can just take more effort on the part of the entrepreneur in order to seek and attract the right investors, as well as the right investors who are willing to take more of a risk in investing in your business.
While there are differences between crowd funding and traditional venture capital funding methods, the two share one common goal: raise money. Many businesses which rely on traditional funding methods such as using personal savings or other investments, bootstrapping, or acquire a small business loan take on a large portion of risk involved in starting a business. While the risk of launching a business is still very much on the shoulders of entrepreneurs, much of the financial risk is now dispersed and shared among willing participants and investors who want to see your small business succeed.