Blockchain crowdfunding for startups is one of the newest funding mechanisms to hit the startup world. In today’s digital age, it has become easier than ever for startups to connect with prospective investors. For founders seeking investment, there are multiple platforms that can be used to search for potential startup funding sources such as:
- Venture Capital
- Angel Investors
- Bank Loans
- Non-diluting funding such as business grants or strategic partnerships
Blockchain crowdfunding for startups is looking to change the startup funding game. Instead of offering products, as is the norm with crowdfunding platforms such as Kickstarter, Indiegogo, and such, startups can now offer their own cryptocurrency to early investors. But before getting into how blockchain crowdfunding for startups works, we need to first understand cryptocurrency and blockchain.
What is Cryptocurrency and Blockchain?
Cryptocurrency is a virtual, digital currency that is a decentralized digital cash system. More specifically, it is a medium of exchange created and stored electronically in the blockchain, using encryption technologies to control the creation of monetary units and to verify the transfer of funds. Bitcoin is the best-known example of a cryptocurrency.
The blockchain is sort of a digital ledger that records the transactions made with cryptocurrency. It also verifies the transactions, and then creates an indelible record. The entire community can verify each transaction, as blockchain is decentralized. It was originally developed for Bitcoin, but the tech community found other applications for it, including blockchain crowdfunding for startups.
How to Use Cryptocurrency and Blockchain Crowdfunding for Startups
Traditional crowdfunding involves people with ideas turning to platforms like Kickstarter and asking strangers to fund their ideas. Inventors pitch their idea to the community and ask for funding. Contributions can range from just a few dollars up to hundreds of thousands of dollars and beyond. Depending on the platform, in exchange for their financial support, contributors either received an early-release version of the product or in some cases, equity in the company.
But with the rise of cryptocurrencies like Bitcoin, Ethereum, Litecoin, Dogecoin, and more, entrepreneurs now have another way to secure capital – blockchain crowdfunding for startups.
New crowdfunding platforms now allow inventors to make and sell their own cryptocurrency to potential investors. Blockchain will then account for these tokens and make indelible records, which will make them impossible to modify.
Each token represents a share in future profits. It works just like a share in the stock market; they have the potential to increase in value and you can trade them freely. So instead of getting the company’s products and other merchandise in return, investors will get cryptocurrencies.
The Future of Blockchain Crowdfunding for Startups
Crowdfunding has helped many businesses to take off. In 2016 alone, $738.9 million was raised globally. But the popularity of cryptocurrencies opened the way to the next step of crowdfunding’s evolution.
Blockchain-based crowdfunding for startups also creates more opportunities for projects that wouldn’t get any funding otherwise, even with traditional crowdfunding. It decentralizes the funding model and even challenges other crowdfunding models. For example, Kickstarter charges 5% of the total funds received, plus the payment processing fees ranging from 3% to 5%. But blockchain removes this bridge, bringing investors directly to startups.
Today, many projects have already been funded through blockchain crowdfunding platforms. An example would be CoinStarter, which already has over 170,000 members despite only being in the beta phase for three months. Some of the rising platforms supporting blockchain crowdfunding for startups include:
The game has only started, but we’ve already seen outstanding results. Given the early results, it’s likely that blockchain crowdfunding for startups is here to stay. Interested in learning more about blockchain crowdfunding for startups? Contact me today and let’s talk!