Starting a small business is full of challenges. From building your team to finding the right business model to finding the right market segment, there’s a challenge on every single step. However, nothing can be as challenging as finding the funding. Because at the seed stage, a business needs not just funding from any source – it needs funding from the right source.
Otherwise either the founders end up diluting a lot of their stake, or they end up piled by a huge amount of debt that they can’t service. There must be some cheap source of funding that neither requires them to dilute a sizable part of their holdings nor comes with a heavy rate of interest. Finding that source of funding is where a lot of startups end up digging their grave.
Decentralized crowdfunding: The end of small business funding woes?
Fortunately, a new solution is emerging to fix the funding challenges of small businesses. And that solution, not too surprisingly, is coming from the decentralized finance space. The industry that is redefining almost every part of finance is set to redefine the game of business financing by providing cheaper and more accessible sources of funding to the businesses of the seed stage.
Many decentralized funding platforms are emerging that are helping new startups raise funding for their business by tokenizing the business ownership. Let’s explore the advantages and limitations of this new funding model in a bit more detail.
Decentralized crowdfunding: Advantages
There are many advantages of decentralized crowdfunding for both business owners as well as investors.
Advantages for entrepreneurs
- No paperwork needed: The time consumed in tedious processes of paperwork to secure business financing is saved as decentralized crowdfunding is based on smart contracts that regulate themselves.
- Decentralized ownership: Unlike a bank or a venture capital firm, financing secured from a decentralized crowdfunding platform involves a number of investors who are willing to invest in a project. This is a much better situation for any founder than a single VC firm or bank controlling a sizable part of their stock.
- Project promotion from early-stage: Decentralized crowdfunding also promotes the startup among a tech-savvy population, thus providing a good platform for marketing the new project.
Advantages for investors
- Ownership in promising projects: Investors get to invest in promising startups from a very early stage.
- Profit-booking at any time: Investors can either hold their tokens or book the profit at any point in time by selling them at an exchange.
- Investment in real businesses: Unlike ICO projects that often end up failing, investors get to invest in promising startups that have a higher chance of success. This provides a good foundation for the ROI on their money.
- Automated regulation: Unlike traditional business investments where things are regulated by a regulating authority, the world of decentralized finance is governed by smart contracts. This significantly reduces the cost of compliance.
Blockchain and decentralized finance can be a gamechanger for small businesses financing. - Mr. Thomas Ganz, Founder, Coinstox
So that was an introduction to the fascinating world of Decentralized crowdfunding and how it’s revolutionizing business finance. If you are willing to invest in any good startups through this new method of investment, you can do that using such platforms. Or, if you’re a business, you can benefit by securing funding for your business from this platform.
In case you still have any questions about it, contact me, and I shall try to answer them. I would also love to hear your thoughts about this new method of business funding, so speak your mind.