Transparent crowdfunding can fill the VC gap

The last decade and a half has been a golden age for the hi-tech industry. From the iPhone, social media and Netflix to cloud computing, online shopping and blockchain, the industry is constantly in a cycle of disruption and innovation. The tech industry even played a major role in the global economic recovery following the great recession of 2008-09.

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Last year startups raised a record $643 billion through global venture capital investment, but so far 2022 has been another story. Falling tech stocks, soaring inflation, a war in Eastern Europe and a plethora of other factors are straining the global economy, making fundraising even more challenging than usual. The old mantra in tech that market downturns wash away the weak startups holds weight, but it doesnt mean the strong ones can survive without funding.

What other options do serious, yet cash-strapped startups have to raise funds in these harsh economic times？

Crowdfunding as a Substitute

When everything from big tech firms and small startups are laying off parts of their workforce, it means money is tight and small startups must get creative in order to stay afloat. As VCs wallets tighten, the need for startups to find alternative sources of funding is leading many to turn to crowdfund platforms.

There are three primary types of crowdfunding campaigns commonly used today. Rewards-based campaigns raise capital and then reward donors with a tangible gift, such as early access to the company product, without having to give up equity in the company. Donation-based essentially raises capital as a charity, typically to support a social initiative or business that has deep roots in a specific community and needs assistance to survive. The third type, and one most relevant for startups, is equity-based.

Equity crowdfunding is the logical choice for startups affected by the slumping market because it attracts investors seeking out disruptive products and projects. It also most closely resembles the process of courting VCs because it requires a strong business pitch to sell the investor on the idea or product.