While setting up a business on what feature you focus the most? Well, let us speculate; its Funding, Right! Nothing works without money and that comes underfunding. Funding is the fuel through which a business runs, it speeds up your business and assists you to accomplish your desired goals. And this funding takes two ways as Crowdfunding and traditional funding.
One must completely understand the difference between the two ways of funding before deciding which one will work best for setting up a business.
Crowdfunding is an easy and quick way to raising money online. It is all about sourcing important funds through the means of other people. It is no longer restricted to just products, but it also involves services, film-making, music, and other. It gives an entrepreneur the right platform not only for generating funds but also marketing your idea. It allows people to know about a business even before it is launched.
However, in comparison to the traditional funding options, crowdfunding lacks on many fronts. One such problem area is maintaining secrecy. As you make your idea public, there is nothing unique left about it, and people can replicate the idea immediately. Also, once an entrepreneur collects the crowdfunding money, he/she is practically on his own, and will not receive the guidance of seasoned traditional investors.
Here are few points that will clearly tell you the difference between crowdfunding and traditional funding:
- Crowdfunding allows you to collect funds for a new business online, through a large number of investors. It can be found on websites like Indiegogo, Peerbackers, RocketHub, and other. Whereas, traditional funding sources are like loans from banks, financial institutions, grants, angel investors, venture capitalists, and other.
- In crowdfunding, it is easy to find investors. But traditional funding requires time and effort to persuade investors to invest in a venture.
- Crowdfunding provides a sense of validation of the workability of the product or service by a number of people. But traditional funding does not provide scope for any kind of validation.
- In a case of crowdfunding, you have to post video links, information, social media links which describe how innovative and interesting your venture is. But in a case of traditional funding, You have to provide necessary financial records, business plan, guarantees for the loan to be sanctioned.
- In crowdfunding, there is no guarantee to hide your unique ideas and information from being hidden by others. But in traditional funding, your information is often safe with the funding authorities.
- In a case of crowdfunding, the control of the business remains in your hands and the investors cannot enforce their decisions on you. Whereas in a case of traditional funding,the control is shared along with the investors, and they may override your decisions if they think it is not in the best interest of the business.
These are the various differences between crowdfunding and traditional funding. And now you are familiar with the advantages and disadvantages of these funding so you can choose your option wisely.