VC or crowdfunding?

VC or crowdfunding?

25 Sep 2014
| Last update: 25 Sep 2015

Is your startup suitable for VC funding or crowdfunding?

crowdfunding

Choosing the right funding for your startup or new business should never be a decision on the spur of the moment, or an easy one. In order to make sure you’ll have success, an ongoing progress and activity, that you’ll break through the market and create a name for yourself, and even scale out and go global, you need to consider this as sensibly as you can. The right funding depends on your product/idea/startup, on your public/audience, on the scale of your business and future investment, on the market you want to draw in, on your plan for developing in the long run, etc.

That’s why I thought it of great importance to know for sure and decide whether what you need is crowdfunding or VC funding.

My aim here is to discuss the differences between the two types of funding, and how and in which cases they can either benefit or harm your startup. If you want basic clarification on crowd-funding and VC funding, read Funding your startup is now a piece of cake!( you’ll find all that you need to know just at a click away 🙂 )

The choice between crowd-funding and VC funding depends on your type of startup

In his great post, Crowd-funding vs. VC seed rounds: Which makes sense?, that I especially like because of the interesting and new way in which he classifies the types of crowd-funding( which I mentioned in the article on  funding your startup), Lee Hower suggests that crowdfunding is a good option if you have a product to launch, which also has some physical hardware component. Moreover, if your company is not designed for VC funding, if it does not have the potential to reach VC expectations of scale, then crowd-funding might be the next best decision. By crowd-funding you can raise a small sum of money early on, putting the basis for your startup. Project crowdfunding can be also very attractive because it helps you identify and connect to early adopter customers, who can give you feedback and become loyal to your future brand.

Even so, after raising some money by means of crowd-funding, you can choose to opt for a VC round at the Series A or B stage.

However, the average amount of money raised by crowdfunding is around $10.000. So, if your goal is to raise a substantial sum of money and you don’t have in mind a consumer product, you should opt for VC funding. Venture Rounds are perfect for tech startups with the potential of building a business up to Venture stage, so, to have the potential to get great sums of money, such as hundreds of millions or billions of dollars, in 5-10 years.

Decide carefully and with precaution

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The fact is there is no turning back, whether you go for crowdfunding or for VC funding, once you make a decision, you can’t go back. So, you stick with it, that’s why it’d better be good. Take into consideration what’s best for your startup and then strike a deal. You will find it worth your time.

What do you think? What would you opt for?

Ligia Mangra
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Ligia Mangra

Content Writer at Squirrly
A passionate writer. I love seeing a full moon and I like to rock 'n roll in life. Can't wait till my first novel gets published. Thumbs up, it'll be a fantasy horror!
Ligia Mangra
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2 Comments

  • Bill Huston (@BillHuston1)

    September 30, 2014 at 1:24 PM

    Great article. I think there is a path being developed, for startups the would have no chance to receive VC funding, and it involves rewards crowdfunding, equity crowdfunding, angel investment and once the VCs see that the company or product has traction, market validation and proof of concept they will step in and take a closer look. I see crowdfunding as a beneficial tool for founders, investors, angels, and VCs. What are your thoughts??

    • Ligia Mangra

      Ligia Mangra

      October 1, 2014 at 5:40 PM

      It’s true that crowdfunding is a great tool for people who want to develop a startup, for funding education, personal projects, hobbies, you name it, you get it. We’ve all heard the news about the potato salad that was so successfully funded, and basically people were drawn into the project, because it was so fun and they could all be part of this global prank. I also saw a campaign successfully funded, which involved putting on scene Hamlet, but played by puglets. If this gets funding, you can only imagine the rest… Of course, when they see a company or project has traction, VCs are more likely to invest, so it is indeed beneficial. If people buy it, then they buy it, I’d say. Thanks for the comment!