To crowdfund or not to crowdfund, that is the question…
Getting from ‘idea’ to ‘business’ is always tricky. You’ve got great moral support in your team, friends and family, but have you got the financial support you need to get your show on the road?
Crowdfunding is becoming increasingly well known, especially with Kickstarter projects like Zach Braff pitching his new movie. But when you’re not an A-list celebrity it’s a very different story. Here are all the pros and cons you need to figure out if you should jump on the bandwagon.
– Opportunity for big profits – Appealing to a crowd instead of a few private investors means you have an immediate large scale reach in one foul swoop. Generate interest and you can generate capital, fast.
– Spread the word about your product and company – Crowdfunding can act as an advertising tool as much as a fundraising tool for you. If you play your marketing cards right you could have a ready waiting crowd of consumers ready for your product before it’s even released.
– You control the exchange –Reward investors on your own terms – you decide whether to get creative with your rewards (e.g. for donations), you decide how much interest to offer investors, you decide how much equity to offer. Be reasonable of course, but ultimately the ball is in your court.
– Potential for product validation – If you reward investors with your products you can gather valuable information about what sells the best or feedback on improvements you can make.
– Tired of the old system? – A great alternative if you want a more interactive and personal fundraising system than the old pitching to VCs, banking institutions or getting bogged down in endless admin.
– All or nothing – Many platforms use the All or Nothing format. If you don’t hit your target you get a grand total of £0, so this could risk you having wasted all the time, money and effort you put into your campaign.
– Investors are just ordinary people – Whilst this could be a pro for you, it means that you’re unlikely to gain the contacts or practical aid you would get from approaching VCs, and you have to have a product that appeals to the masses for this to work for you.
– Low goals – Crowdfunding draws small donations so probably isn’t reliable if you’re looking to raise over around £100,000, and even then there’s no guarantee.
– Company and product visible to competition – Whilst the publicity is great there’s a chance of IP theft or someone else appropriating your idea.
– Commitment – You have to put in the time and effort to check the forums, answer questions and come through with all promises of rewards as well as get firm quotes from suppliers to meet the demand for your product.
Who knows, you could be the next big crowdfunding success story, but it’s still a new and developing concept so make sure it suits your business before you take the plunge.