The Benefits of Crowdfunding vs. Venture Capital

Entrepreneurs commonly think that when they need funding for a new idea that they should contact a venture capital firm, but crowdfunding is a new alternative route that many entrepreneurs are considering. This article presents the case for why crowdfunding is a better option than venture capital for many entrepreneurs.

Maintain Control of Your Company

One of the biggest negatives of accepting venture capital financing is that entrepreneurs commonly lose board of directors control over their companies. I have personally seen many entrepreneurs get fired by their venture capital investors within only a few years of accepting a major funding round. If you want to maintain control of your company for decades to come, consider accepting a larger number of $25–50K checks from dozens of investors instead of a multi-million dollars check from one VC. You can maintain control of your company by setting up a special class of shares that gives you control of your board even if you drop below 50 percent ownership. This is something smaller investors tend to find acceptable while many VCs will not allow this type of voting structure.

Use Your Investors as Advisors

At my company Fruit Street, we have attracted approximately 300 physicians to invest into our company. These physicians not only serve as investors, but also as advisors who give us input on our product design, business strategy, and make helpful introductions to potential customers. Some of these physicians also use our product in their practice or consider referring patients to us. Sometimes your investors can be your customers!

Social Impact vs Financial Investors

Many entrepreneurs start their company not only for financial gain, but also to have a social impact in the world. Unfortunately, many VCs are exclusively focused on getting a financial return on investment and care less about having a social impact in the world. Often when you utilize a crowdfunding strategy, you will be able to attract investors who are equally as passionate as you are about the social mission of your company.