Crowdfunding is used for everything. Artists use it to fund albums, video game companies use it to fund their next big hit, and regular people use it to raise money for medical expenses. However, one way that crowdfunding has really taken off is with startups. Businesses all over the world have been using platforms like Kickstarter and IndieGoGo to raise capital for their company. Although this sounds like an easy way to make some quick cash, there are a few points to be cautious about. Before you sign up for one of these sites, consider if it is a wise idea.
Before diving into the downsides of using a crowdfunding site, let’s look at one huge positive: free marketing. Your campaign will be available to people from all around the world, to all kinds of people. While few ideas will be featured on main pages, well-written bios and titles will bring your project up in search results. This direct-to-audience approach can really pay off, and is likely a reason why many projects get funded successfully.
Now onto some of the downsides. Since you are beholden to your contributors, frequent updates are a necessity for a good crowdfunding campaign. This can be a burden, especially when companies hit snags that take weeks or months to overcome. Keep in mind that any update is better than no update, and you will have to set aside time regularly to give thorough information to your contributors.
There are a number of projects that attract angry crowds, for numerous reasons. Not updating frequently enough is one way you might attract unwanted comments. Likewise, updates that do not show progress and have no explanation as to why are also going to infuriate some people. Missing deadlines for when your product will be complete, or when you’ll have a prototype can also cause issues. Many times, angry crowds form once projects are funded, but problems arise. Contributors may feel as though they were ripped off, as in some cases, companies have stolen money from people on these crowdfunding sites. Try your best to do damage control without sounding defensive, and always stay transparent.
Unfortunately, many sites have an all-or-nothing policy that makes it difficult to bank on funds. If you set a $1000 goal, but only reach $999, you won’t receive that money. This can be a problem when people take out debt with the intention of repaying it through a crowdfund campaign, but it’s also not ideal for anyone who starts a project. Make sure that, no matter what, if your project is not funded, you will not lose out significantly.
Crowdfunding works for many people, and it’s a great way to drum up potential customers and bring about a round of funding without speaking to investors. Still, before you sign up for one of these sites, consider what might happen if you fail. Make sure failure is not going to destroy you before you even start.