How to Use Crowdsourcing and Crowdfunding to Get Capital

Getting a business off the ground is not easy. There are often startup costs that can hinder your development. While the typical solution to this problem is to max out the credit cards, get a loan from the bank, or find a private investor or an investment group, there is an alternative that is much less risky which is crowdsourcing.

What is Crowdsourcing?

If you have never heard the term “crowdsourcing” before, it is a very simple concept to understand. Crowdsourcing is simply the act of outsourcing to a mostly anonymous group of individuals for very little, or no compensation in return.

Crowdsourcing is a way for companies to outsource labor to a large group of people in the form of microtasks; it can also be useful as a way of gathering opinions and information.


If you are not interested in crowdsourcing, then crowdfunding might be better for you. Crowdfunding basically takes donations and many businesses and organizations use this practice. However, crowdfunding is not always that easy. Do not expect for the money to come rolling in fast. This practice can be useful when you are doing crowdfunding, but you should try other aggressive techniques as well.

Provide Incentives

In most cases you are going to have to offer some incentive if you want people to help you fund your business. One way of doing this is to offer special rewards or gifts to people who contribute a certain amount of money. You could offer free t-shirts, which are really cheap to order in bulk, free office supplies, or a unique item you create yourself.

Whatever you plan to give away, make sure that it relates to your business. Consider having your company logo applied to any merchandise you give away. This is a branding strategy that is powerful in helping you build your brand recognition in addition to rewarding loyal donors.

Another tactic is to release a product or reward for the entire community when the amount of money received from donations reaches a certain level. Some examples include digital products such as eBooks since you do not have to worry about any shipping costs.

One of the most recognized crowdfunding platforms is Kickstarter. It allows users to seek funding from other uses and manage their fundraising campaigns.

Why Raise Capital This Way for Your Business?

Not only is it convenient and free to raise money this way, but the main benefit is also that you can easily validate your business idea. This means most of the time that good ideas raise the money you need. Traditional bank loans require business plans, credit checks, along with other factors that can make it a struggle to get the funding you need. Additionally, if your business fails, you still have to owe that money back to bank, unlike with crowdfunding. You are free to spend all the funds on your business, and if that business fails, you do not owe anything back to your supporters.

When traditional investors give you money, they take equity in your business, which gives them a major say in how your company operates. That is not the case with crowdfunding. Your supporters do not get any equity in your business and they cannot tell you how to run your business. They just expect you to make the product you promise to create. If you do not feel comfortable with having someone else control your business, crowdfunding is the way to go.

The Bottom Line

Crowdfunding can be an exciting way to fund your startup business, but the opportunity comes with a lot of fine print. Take your time, understand all the requirements, and make sure that you can back up your promise with realities before you consider crowdfunding. If this does not feel right still with you, you can always look for alternative ways to fund your startup business, including personal and business credit cards.