Difference Between Investors and Crowdfunding

When starting a new business or start-up, funds become one of the number one concerns for small business owners and inventors. Not only that, when especially entering the product design and retail business sector, a lot of inventors are curious about whether their product as market appeal. One of the main reasons for this concern is to secure their stability as a business within their market of choice through having a product that will generate them profit and pro-long their success as a business. With so much competition in the market, and battling huge corporations and businesses, making sure your business has enough funding and support is almost vital as most business with no concrete backing are likely to face difficulty and possibly fail. Recently, businesses have turned to investors and crowdfunding to help fund and support their businesses. Keep reading to learn everything about investors and crowdfunding and how it can help support your business!

About Investors

Like the name suggests, investors and investing refer to a person or people who invest in your product, service, or business because they see the opportunity for growth or value in your business. Essentially, investing is equity-based crowdfunding, where individuals invest in a start-up or new business in order to receive shares of that businesses profit in return. For every person that invests into your business or start-up, they become a new shareholder and benefit from any business achievements, from sales to large investors. Investors invest in new businesses or start-ups simply because they want to help a business that they believe has a good mission, product or service to offer and would like to see flourish an expand – other investors simply invest for purely financial aspects, looking to make a big profit.

Pros and Cons of Investors

Some of the business benefits of having investors invested in your business or start up is that you can gain great insights and guidance in helping build your business. Investors typically come with years experience in what businesses they see have value in investing in, if you have any crowd investor, it is worth coming to them for insights, knowledge and any past experiences they have for navigating the future of your business and what tips and tricks can help you as a new business owner. Another great benefit of investors is that there is less risk in repayment under the chance that your business does not take off as projected or fails. Unlike bank loans, investors don’t come with huge legal requirements, making any debt you’d have to repay in a worst-case scenario won’t be as serious or stressful than a bank loan. Finally, another benefit of investors is that they are great for creating and meeting new connections. It should go without saying that most investors have a good background within the business and start-up realm, meaning that they are sure to have great connections to professional networks, other investor, manufacturers, reports, etc.,

Although it may seem that there are greater benefits to having investors, there are a few cons. One aspect that a business owner must consider before having investors is to understand that with more investors, comes less control over the scope of your business. Every piece of equity through shares that you relinquish means less control for your start-up and business. It’s important that before making deals and partnerships with any investor, that you do the proper research on who they are and their background with investing. This is to ensure that you bring someone along that you trust and sees the same vision for your business as your do. Another added con to investors is that it can apply more pressure as the business or start up owner. As an owner, its almost imperative that you make sure that you have a product or service market fit and a great business model in order to get investors, and most importantly, keep them. Finally, in general it’s a long and tedious process in acquiring investors due to the amount time, energy, and perseverance that one has to take in order to enlist a reliable team of investors.

What is Crowdfunding?

Although almost similar in concept, crowdfunding and investors are very different. In crowdfunding, a group of people choose to finance a project that is either charitable or artistic, that would not have been noticed without that group. With most crowdfunded projects, those who choose to crowdfund know that there might not a be a monetary reward, therefore in a sense, crowdfunding can be compared to a sort of donation (although, start-ups and business owners offer “rewards” in the form of merch, or the product itself afters it’s been fully made as a compensation for crowd funders support). People helping other people to bring their projects and ideas come true. There are number of famous crowdfunding sites that have taken off in popularity as many new start-ups and businesses look to gain support through crowdfunding to not only validate the need for their product or business, but also get some financial support to kickstart their projects. Some of the most well-known and reliable crowdfunding sites include Indiegogo and Kickstarter.

Pros and Cons of Crowdfunding

There are a lot of good reasons why new business owners or start-ups immediately look to gain attention and support from the crowdfunding community. One of the greatest and well-known business benefits from receiving crowdfunded support is the important validation that comes from knowing that a group of people are interested enough in your business, or product, to support financially. If you can gather enough financial support from a group of people, not only do you gain financial help in starting your business, but you also prove to potential investors that there is an audience or market of people who are interested in your business and need your product or service. Another great benefit of crowdfunding is that it is a smart tactic in gaining exposure and publicity for your product or upcoming business. Popular projects that receive a lot of funding not only help you financially, but also can help build strong and early customer relationships and clientele from a crowd of people who are excited to see your business or product start up. Finally, one of the best benefits of crowdfunding is that there are zero equity requirements, owners and founders of their businesses and start ups get to keep 100 percent of the equity they gain from crowdfunding.

Although the list for why crowdfunding could be potentially bad for your businesses is small, there are still a couple ways in which crowdfunding can hurt your future business. One things to remember about crowdfunding is that if your business is planning to sell itself to other businesses (B2B), crowdfunding is a less preferable because crowdfunding is more of a personal choice per individual rather than on behalf of a business. Businesses would rather invest in a future service and business they believe in rather than donate to one. Another challenge that a business could face through crowdfunding is trying to properly market their crowdfunding efforts. Although it was previously mentioned that crowdfunding can be extremely beneficial in terms of exposure and visibility, that is only if it can be done right, which means that unless you are skilled in marketing or have a marketer on your team. Finally, most crowdfunding sites state that you must set a funding goal for your business or start-up, and in event that you don’t reach this goal, the pledged amount will return back to the original crowdfunders. This could be a liability to your efforts and time taken from putting your business out there initially.

MAKO Client Case Study

As MAKO Design + Invent is a product design and development firm that caters our services to home inventors and small businesses, it’s not rare for us to see that some of inventors we work with are looking in crowdfunding or investors to help fund their projects! One of our most successful clients started out with Kickstarter campaigns that not only helped fund the development and creation of their product but gave them major publicity and built excitement for the debut of their business! Inventor Natalie Rebot approached MAKO with the idea for Moonlite, a children’s product where you can project stories through your phones flashlight and read with your kids! While we thought the idea was genius and immediately went into concept design and prototyping the product for Natalie, Natalie used Kickstarter to help get crowdfunded support for her upcoming small business. Not only was Natalie met with immense support for audiences who wanted to see this product come to life and have it for themselves, she was able to fully fund the production of Moonlite by reaching her fundraising goals!

If you have a great new invention and you’d like to learn more about this process, get in touch with MAKO today and visit our website to find out more. Or feel free to give us a call at 1-888-MAKO, and we can set you up on a call with our product strategist!

About: MAKO Design + Invent is the original firm providing world-class consumer product development services tailored to startups, small manufacturers, and inventors. Simply put, we are the leading one-stop-shop for developing your physical product from idea to store shelves, all in a high-quality, cost-effective, and timely manner. We operate as one powerhouse 30-person product design team spread across 4 offices to serve you (Austin, Miami, San Francisco, & Toronto). We have full-stack in-house industrial design, mechanical engineering, electrical engineering, patent referral, prototyping, and manufacturing services. To assist our startup and inventor clients, in addition to above, we help with business strategy, product strategy, marketing, and sales/distribution for all consumer product categories. Also, our founder Kevin Mako hosts The Product Startup Podcast, the industry's leading hardware podcast. Check it out for tips, interviews, and best practices for hardware startups, inventors, and product developers. Click HERE to learn more about MAKO Design + Invent!