Crowdfunding is a common method used to raise funds for a startup through online medium. This method allows everyone to raise funds and turn their dream into reality. There are a variety of crowdfunding techniques.
Among them, reward-based crowdfunding is a common technique used to collect funds mostly from family and friends. As a return, the investors/backers are offered with rewards.
Getting investors for crowdfunding campaign is not that easy. People need to devise a perfect strategy to impress the investors. Especially in reward based funding, the person looking out for investments should formulate a perfect reward scheme that will attract the investors. In the case of reward-based crowdfunding, the investors are compensated with various types of rewards for the investment they made regardless of whether they are small or large. This method of crowdfunding is considered much more efficient than other crowdfunding techniques because,
1) Presence of reasonable financing
Other types of crowdfunding techniques require the person to stake a part of their business to acquire the investments. But in case of reward-based crowdfunding investments, people raise money without any loss from their side. This method allows the the entrepreneur to have complete authority over the funds without worrying about repaying the money back.
2) Gain continuous funding for the next project
If the people who have invested in your previous projects have benefitted efficiently in their funding, then they will be more than willing to take part in your next business venture. The entire reward-based funding system depends upon the trust they have built upon each other. Hence the investors who have invested for your previous funding will be more than willing to continue their relationship for the upcoming Investments.
3) Low risk
Even though it is necessary to treat the investors with proper honour and fulfil the promises made, this is considered as one of the lowest risk money raising scheme. It does not involve any repayment process that is constructed to a particular amount of time. People can repay their investors with some rewards, either physical or digital, which makes it easier for the entrepreneurs to operate the business independently without any pressure from the outside.
4) Proper feedback and guidelines
Most of the people involved in this process of investments are investing because of your idea on the trust they have on the entrepreneur. Hence they naturally provide a lot of feedback and guidelines that might help you to run the business successfully. These feedbacks are restricted to a personal level rather than involving in the office details which might disturb the authority of the person running the business.
5) An effective way of marketing
Crowdfunding is a powerful marketing tool. People share your crowdfunding campaign on social media and other platforms and thus your projects is seen by many people. Secondly as these campaigns are shared by friends who they know, hence people are more likely to trust your campaign and make a contribution.
Because of these reasons reward-based crowdfunding is considered as the most effective technique of crowdfunding. With proper planning and strategy, entrepreneurs can get a lifelong relationship with the backers / investors who will also be the early adopters of your product.