Standing out from the crowd

Finally, you've done it. You've thought of that million-dollar business idea.

There is just one problem: you do not have the money to get it off the ground.

You need funding, but where do you go to look for it?

There was a time when starting a new business venture was almost impossible for anyone without a lot of cash or the right connections. Luckily, this is no longer the case. Today, founders have several options available to them, including venture capital, angel investors, grants, friends and family, and crowdfunding platforms.

Venture capital may not always be suitable for a very early-stage company. VC investors usually look for businesses with the potential to scale quickly and become very large. Friends and family can also be an option, but it may be one of the riskiest routes of all if you value those relationships.

So that leaves us with angels and crowdfunding. Both have pros and cons. But which one is right for you?

The appeal of crowdfunding

One of the biggest advantages of crowdfunding is that, depending on the type of crowdfunding, your backers may not receive shares in the company. With reward-based crowdfunding, for example, you can raise money by offering early access, products, perks or other rewards.

That means you may not have to give away control.

Angel investors, on the other hand, are often experienced business people who invest their own money. They will usually expect a stake in the company. They may also ask you to provide solid proof of business potential, including market research, a business plan, financial projections and a clear idea of how you will grow.

So far, crowdfunding may sound like a lot more fun.

You get to make a promotional video. Your backers have little or no control over the company. You may only need to offer them early access, a sample, a product or another reward. Plus, you can generate publicity and build a community at the same time.

And yes, crowdfunding can be incredibly liberating.

But that is not always necessarily a good thing.

Freedom can be dangerous

Sometimes this kind of freedom can allow founders to jump in with both feet when they should be treading more carefully.

There is a temptation with crowdfunding to get caught up in the accessibility, the excitement and the buzz, and forget that you are not building a fictional business. You are building a real enterprise.

Real businesses are not all fun and games. They are hard work.

This is what securing an angel investor can help prepare you for.

An angel will ask you to face hard facts. How quickly can you realistically produce your product? What will it cost? Can you deliver on time? Will there be a real and sustainable market for it once the early excitement has passed?

You might say that crowdfunding is itself a form of research. And in many ways, it is. A successful campaign can show that people are interested in your idea.

But crowdfunding audiences are often early adopters. They may not always represent the mainstream public or the wider market you need to reach later.

What angels bring

The most important thing to remember is that the true test of a company comes once the funds have been raised.

That is when it is time to run the business, serve customers, manage costs, deliver the product and continue growing.

Crowdfunding can help you raise money and build attention. But it cannot always offer the knowledge, experience and network that come with a savvy entrepreneur or business person who has a serious stake in your company.

A good angel investor can bring much more than capital.

They can bring advice, contacts, credibility, industry knowledge and practical experience. They can introduce you to customers, partners, suppliers, future investors and potential team members.

Most importantly, they can challenge you.

That challenge can be uncomfortable, but it can also make the company stronger.

Crowdfunding or angel investment?

Crowdfunding may be the right route if you have a product that is easy to explain, easy to show visually and attractive to a community of early supporters.

Angel investment may be the better route if you need strategic support, industry experience, connections and someone who can help you think through the next stages of the business.

The two are not always opposites. In some cases, a company might use crowdfunding to prove demand and angel investment to help build the business behind that demand.

But if your company needs more than money, an angel investor may still be the answer to your prayers.

Crowdfunding can give you a crowd.

A good angel can give you a partner.

And for many early-stage companies, that can make all the difference.

And yes, we will get into ICOs and token-based funding at a later stage.