The Benefits of Crowdfunding for Local Economic Development

Bill HustonAlternative Finance, Crowd Investing


If you can remember back to the end of 2019 or the early months of 2020 the United States was riding a decade long economic boom dating back to the end of the “Great Recession”. The United States had an economy that was able to claim the lowest unemployment rates in the last 50 years and a stock market that seemed destined for the stratosphere. Then the realities of the COVID-19 global pandemic caused a massive contraction of the economy with the stock market that only seemed to be on an upward trajectory, now on a rollercoaster ride that could rival the world’s greatest amusement parks. But the real victims of the pandemic were local Main Street economies that depend heavily on foot traffic to thrive. Restaurants and bars, small businesses, that depend on large crowds and close proximity to thrive are now stifled by the new normal of COVID-19. These businesses are the backbone of the US economy that generates large amounts of revenue and is a major employment driver. How do we recover in the wake of the new normal of COVID-19.    

The Crowdfunding Solution

Both rewards and investment crowdfunding offer a wide range of advantages over traditional business financing for local small businesses that have been enormously impacted by the COVID-19 pandemic. Government programs in collaboration with the banking industry demonstrated that they could not efficiently and effectively disperse capital to this sector of the economy Crowdfunding with benefits ranging from a wider pool of potential investors to more nimble fundraising options, crowdfunding is going to continue to evolve into more popular, and more powerful funding method for startups, local businesses, and real estate development. Crowdfunding has been successfully providing access to capital to local small businesses and real estate development since the passing of the JOBS Act of 2012. Both rewards and  investment crowdfunding has had a tremendous economic impact on the startup, small business, and local real estate development sectors over the last few years. Now in these uncertain times driven by high-unemployment and business interruption crowdfunding has come to the forefront as a legitimate form of alternative funding. Though funding is almost always the main goal of a crowdfunding campaign, it can also be a fantastic way to gain visibility, validate your business, grow your customer base, and  much more.

Crowdfunding is more efficient than traditional fundraising

When you’re an early-stage company, local retail business, or real estate development focused on building your business and attracting seed capital, you might not be able to afford all the time and attention that pursuing traditional financing demands. Compared to applying for a loan or seeking out accredited investors yourself, setting up a successful crowdfunding campaign is far more efficient and effective in getting your message out to the right people. With the right platform, you can tell your story, produce a quick video, set up some enticing rewards, and benefit from having everything in one centralized location where potential backers can find you. Crowdfunding allows the business owners to turn traditional capital raising funnels upside down where the investors and backers are coming to a single website to view the offer online. Instead of packing up your data and information and taking your show on the road where you have to have the right connections to reach investors or backers. The crowdfunding model also facilitates deeper relationships with your backers and investors.

Crowdfunding builds traction and social proof

A strong, highly visible crowdfunding campaign can provide market validation and social proof that’s vital in charting your path forward to raising capital. When potential customers show interest in your startup’s product or service, you’ve generated social proof—demonstrating that other people believe in what you’re doing. Once early adopters vet and buy into your idea, others are more likely to follow suit. Social proof is translated into traction—whether it’s a large number of backers, pre-orders, or media attention—that’s invaluable as you pitch to other investors. As a crowdfunding campaign gets more dollars, backers, and investors this is social proof that should be rewarded by engagement on the campaign or offer page for the creator or issuer. The public nature of crowdfunding allows your campaign to grow organically in plain sight of the public. This social proof can also lead to digital and traditional press coverage that can grow the social proof and market validation!  

Crowdfunding Provides Market Validation 

Both rewards and investment crowdfunding can provide enormous market validation. Market validation is the process of presenting a concept for a product to its target market and learning from those prospective buyers whether or not the idea is worth pursuing. This process typically takes place early-on in the conception stage, before any significant investment has been made in developing the product. This process is very similar to the social proof, but now, using crowdfunding people have actually pre-purchased or invested dollars in your product or brand. This is a vital step in the growth and development of any brand or product. Crowdfunding is one of the most powerful marketing and promotion tools available to small business owners today if used correctly. Both social proof and market validation are powerful demonstrations of what crowdfunding can do for any small business or brand that is willing to take the time to learn how to properly implement a crowdfunding campaign.

Crowdfunding Provides an Online Focus Group for Brands

People that understand the essence of the crowd and the impact crowdfunding can have on their brand if done correctly will listen to their crowd poking holes in the business plan or asking some tough questions? The knowledgeable crowdfunder will understand the value of what is taking place in real-time,take it in stride and accept it as free, crowdsourced brainstorming. The basis of a startup or local small business is finding some important, unmet need that your customers have, and deciding to be the one to do something about it. Thus, it’s important to seize any opportunity for customer feedback and consider it in planning your startup. One of the greatest things about crowdfunding is how close it gets you to your customers or investors, giving you a chance to engage them in field questions, complaints, feedback, and ideas. You never know—your company’s next great idea could come from somebody who is a staunch member of your crowd. This is one of the most underrated and important benefits of crowdfunding. This is why an in-depth understanding of crowdfunding is vital for anyone that is thinking of using this business tool!

Crowdfunding brings you early adopters and loyal brand advocates

The people that power your idea’s social proof are your early adopters and potential brand advocates. They’re the people who believe in your story, product, or service, enough to stake their money on its longevity and long-term success. These early adopters are key to the success of your crowdfunding campaign and the momentum you keep after closing, being the ones most likely to share your vision with friends and family and promote it through their social networks. It is very important that you determine the members of your crowd that are early adopters and engage, encourage, and reward them for the vital work they bring to your campaign and brand. It is this segment that begins the process of growing your external crowd during this process, so engagement with them is vital for your success.

Crowdfunding can increase your marketing and media exposure

Press coverage will create more eyes on your campaign and create lasting brand awareness for your startup or small business. This can come in the form of a feature story on a popular news station, blog, or print publication, and is a great way to bring in backers outside of your personal network. A good feature story or Twitter mention can create a powerful snowball effect, putting you in touch with major backers/investors you might not have otherwise reached. Whether they read about your new product or development on a popular blog or hear about your innovative campaign from a friend, a successful crowdfunding is a great way to capture new backer/investor interest. This increased media and promotional coverage can be leveraged over time to bring even more backers/investors to a project while providing an additional level of social proof. Image an article in Forbes, INC, or a feature story about your brand on CNN and the impact that would have and how many different ways that a brand could leverage this type of media coverage as social proof. It is so important for a brand or small business to have an in-depth understanding of crowdfunding to understand its true value.

Key Takeaways

Crowdfunding has grown into an excellent way for entrepreneurs, local business owners, real estate developers, and early-stage companies to validate their business, find capital and early adopters, and get the exposure they need to grow. To recap, some of the most powerful ways a crowdfunding campaign can help build more startup momentum than other financing methods are:

  • It’s more efficient than traditional fundraising.
  • It generates traction, social proof, and validation.
  • It’s an opportunity for crowdsourced brainstorming to refine your idea.
  • It gains you, early adopters and loyal advocates.
  • It doubles as marketing and media exposure.

If you are a startup, existing small business, or a local real estate developer then crowdfunding might be the right choice for you to access capital and receive all of the other benefits listed above in this post. If you think that this may be for you I would recommend that you start your process by visiting <<Insert My Affiliate Link>>