A number of companies have raised capital through “crowdfunding.” Crowdfunding collects money from everyday people to support an initiative sponsored on an Internet platform. The initiative usually targets a common service, project, product, investment, cause, or experience. Funders donate towards a goal in return for products, perks or rewards — much like PBS fundraisers.
Crowdfunding has disadvantages and advantages. It is easy to think of it as an ideal way to get capital for a new creative project, but it requires a good concept, adequate preparation, and an existing community to support it. We hear of so many successes that the reality can often be something of a surprise. Only 44 percent of projects from Kickstarter, the best-known crowdfunding platform, are successful.
- Access to capital — Crowdfunding can enable you to fund a unique project. It may be a project that wouldn’t get funding from banks. It also provides you with capital in a relatively short time.
- Build awareness — Crowdfunding helps you to build brand awareness before the project is completed. Your supporters will be waiting for the project to be completed, and will tell their friends. Word of mouth is working in the background as you finish your project.
- Press Coverage — Crowdfunding can be newsworthy. If your campaign is doing well or is considered interesting, your project might gain some press coverage. When the project is ready, hopefully, they will run another story reminding their readers, increasing interest in your product.
- Feedback — Whether the campaign is successful or not, you will receive feedback on your project. If it doesn’t reach its goal, you know that it needs more work, but at least you didn’t invest significant money in a startup business failure.
- Speed of response — Crowdfunding campaigns tend to be relatively short with most opting for a pledge period of a month. You find out the results quickly.
- Marketing — Crowdfunding forces you to use every contact you have and to build up your social media channels. Your crowdfunding audience will further the success of your product.
- All or nothing — Most crowdfunding platforms use the “all or nothing” model. If you got your target wrong, you could end up with nothing.
- Reputation — If it fails, your crowdfunding campaign still stays on the crowdfunding platform for all to see.
- Speed — Your product needs to be ready within months of the end of the campaign. Pledgers don’t like to wait years for their reward.
- Time and money — Most rewards can cost you money and valuable time. Will you have enough left over for the original project? Rewards need to be considered carefully.
Crowdfunding that is well-planned, appealing, and persuasive is worth considering. By avoiding common pitfalls, it can be a great experience for all.