Crowdfunding may seem like the latest and greatest way to get turn your ideas into reality but is it for everyone? While some of the pros of crowdfunding may seem obvious, there are a lot of limitations and things you need to think about before deciding if crowdfunding is right for you.
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Before you jump head first into the crowdfunding world, there are some things you need to know.
The state of crowdfunding
Crowdfunding is booming. This is in part due to governments finally recognizing crowdfunding as a legitimate way of raising capital for companies. In the United States, the 2012 JOBS Act legitimized crowdfunding and the addition of the Title III rules means non-accredited investors can take part in equity crowdfunding. This means anyone can invest in startups, opening up a whole new demographic of fundraising potential.
In Europe, governments are beginning to support crowdfunding as well. According to a study performed by CrowdfundingHub , equity-based crowdfunding is already possible in most European countries. The legitimization of crowdfunding will undoubtedly disrupt the banking industry.
According to a report from Massolution, crowdfunding is set to surpass venture capital by this year with over $34 billion per year in online crowdfunding. Of course, this doesn’t mean that traditional venture capital and angel investment will die. Instead, we expect to see VCs and angels adopt a hybrid model, dabbling in crowdfunding.
But one of the biggest benefits of traditional fund raising via venture capital and angel investors is gaining access to people who can help you. With crowdfunding, you’re largely on your own and will have to hustle to open your own doors into the industry you’re targeting.
Are you ready to take control of everything?
With crowdfunding booming in both the US and Europe, it’s extremely tempting to jump right into it. However, there are a few major questions you should ask yourself before you decide if crowdfunding is right for you.
The first major question is are you ready to take control of everything? Without the help of venture capitalists and angel investors, you’re on your own when it comes to crowdfunding. Do you have a compelling pitch? Is your goal reasonable? What happens if you’re unable to reach your funding goal? These are all questions you have to answer before deciding which method you want to use to fund your company.
One of the benefits of crowdfunding your company is that you don’t have to give up equity or control of your company, though there are options for equity crowdfunding as well. You’ll be able to control and execute your vision without the need to give up any control.
Of course there are companies that can help you launch your campaign effectively. Here at Crowdtoolz, we can provide consulting, analysis and audits of every aspect of your crowdfunding campaign to ensure success.
Do you have a pitch prepared?
Regardless of how you choose to raise capital, you have to have a compelling pitch ready for your investors, whether they’re ordinary people or VCs and angels. Your pitch has to be punchy and short enough to grab someone’s attention within 10 seconds.
While your product may be technically superior to what’s on the market, you have to have a compelling story about why your product is better and why people should buy or invest in it. People have to be excited enough about your product that they will share it and advocate it.
Many crowdfunding campaigns struggle with creating a compelling story, and thus fail to reach their campaign goal. You’ll have to consider your audience and decide what voice you need to use. Is your product for ordinary people or is it a niche product for tech-savvy audiences? What’s the age range of your audience? Are they predominantly male or female?
Is your goal reasonable?
One of the biggest reasons companies fail to meet their crowdfunding goals is that the goal was unreasonable from the start. Ask yourself, is my crowdfunding campaign goal reasonable? Can I continue bringing my project to market without reaching my goal?
The answers to these questions will help you decide what a reasonable goal is for your campaign. It will also help you decide between fixed and flexible funding, which is available on crowdfunding platforms like Indiegogo.
Have you patented your idea?
Perhaps the riskiest part of crowdfunding is the fact that your company cannot operate in stealth mode. Everything you do will be public and will give copycats an opportunity to steal your idea.
For example, look at the story of Yekutiel Sherman (via Quartz), an Israeli entrepreneur who created the STIKBOX, a cell phone case that unfolds into a selfie-stick. Sherman was shocked to find his product for sale on AliExpress one week after his campaign began. Copycats dissected his Kickstarter campaign, replicated his idea, and put it on the market within one week.
One way to combat plagiarism of your ideas is to patent your design before you launch your crowdfunding campaign. However, copycats may still steal your ideas in hopes you don’t have enough funds to take them to court.
Crowdfunding is by no means for everyone. There are clear benefits of crowdfunding, such as speed, not having to give up control, and raising more money than your actual goal. However, there are clear risks involved. You’ll have to be prepared to tackle every problem that crops up before, during, and after your crowdfunding campaign. If you have no experience with marketing or customer service, you’re in for a shock.
But the rewards may outweigh the risks for many, and that’s why crowdfunding is booming. Personal crowdfunding site, GoFundMe, recently passed its $3 billion milestone after hitting its $2 billion mark five months prior. Every case study suggests crowdfunding has even more potential to grow, at least for now.