Pros and Cons of Crowdfunding for eCommerce Businesses

Crowdfunding is an option to raise capital for your new eCommerce business. This is becoming a common way to raise finance for business and an alternative to bank loans. As your business is an eCommerce brand, a successful crowdfunding campaign involving many potential investors may be the perfect choice. However, there are alternative options to raise capital for small businesses, such as venture capital and angel investors. Therefore, checking that crowdfunding is the most suitable way to raise finance for your online brand is essential. This article will explain the advantages and disadvantages of crowdfunding for eCommerce businesses.

How Do I Crowdfund for My eCommerce Business?

Crowdfunding is a way for your eCommerce business to raise sizable funds from many members of the public. You do this by finding a crowdfunding website to pitch on. You should write an excellent crowdfunding pitch to sell your internet brand on the crowdfunding platform. This will encourage internet users to invest in your company.

You should choose the correct crowdfunding type to crowdfund your eCommerce business. There are three main types to choose from, which include:

• Rewards-based crowdfunding;
• Equity-based crowdfunding; and 
• Loan-based crowdfunding.

What are the Advantages and Disadvantages of Crowdfunding for eCommerce Businesses?

Crowdfunding has advantages and disadvantages for eCommerce businesses, and we look at some of these below.

Advantages

One critical advantage of crowdfunding for your eCommerce business is its speed and ease. Filling in loan forms to raise funds through a bank can take time. Also, if your idea is unusual, it may have more traction through crowdfunding than traditional finance with banks. 

Another advantage of choosing crowdfunding to raise capital for your internet business is that you will expose your business widely to many. Naturally, as you pitch online, those who see your business can be from anywhere globally. Also, the crowdfunding platforms will already have internet users who invest in them regularly. These investors are ready to consider investing in your internet brand. 

In addition, when you choose to crowdfund, once a few people become interested in your brand, more may follow. When your eCommerce brand is exposed, you also gain interest and appetite for it. 

You can also use social media to market your crowdfunding campaign, but be wary of legal issues. For example, ensure you have a robust contract with any social media influencer. 

Disadvantages

Unfortunately, crowdfunding for your eCommerce brand can have disadvantages. One of these is that even if members of the public invest in your brand, you can only touch the money once you reach your internet business’s target amount. You have to do this within the timeframe you allocate. Therefore, choosing to crowdfund for your eCommerce brand means you may end up with no finance for your company.

A further disadvantage for your eCommerce brand is that crowdfunding costs money initially. Firstly, you end up paying the crowdfunding platform a fee to use their website for your internet brand. Also, you must ensure you produce an excellent crowdfunding pitch for your eCommerce business. This will cost both money and time. Also, if your crowdfunding campaign fails, it could damage your business reputation. 

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Another disadvantage of crowdfunding for your eCommerce brand is that you must be wary of intellectual property (IP) laws. You must comply with these and protect your intellectual property when crowdfunding. Crowdfunding exposes your business, but this can have drawbacks as clothes see your internal brand’s ideas and may try to take them. It is essential, therefore, to have an excellent intellectual property solicitor to ensure, for example, that:

• trademarks are registered; 
• you register your domain names, and
• your ideas are not already someone else’s. 

Key Takeaways

Crowdfunding is a tool to raise finance for your eCommerce brand. You do this through a crowdfunding platform website and the public may invest in your brand. There are different types of crowdfunding platforms to choose the right one. 

Crowdfunding has advantages and disadvantages. Advantages include the speed at which you can create your crowdfunding campaign. Also, it exposes you to a large audience and acts as a marketing tool. Disadvantages of crowdfunding include the costs involved, as well as risk in terms of intellectual property. A further disadvantage of crowdfunding is that you may not get the funds to reach your target. 

If you need help understanding the advantages and disadvantages of crowdfunding for eCommerce business in the UK, LegalVision’s experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.