Crowdfunding has grown in popularity as a means for individuals and businesses alike to raise much-needed capital. This funding revolution has been fueled by the relatively low cost of entry and accessibility of popular crowdfunding platforms.
However, while it may appear to be simple — and even a no-brainer — to launch a crowdfunding campaign, there are significant pros & cons of business crowdfunding.
Founders thinking about starting a crowdfunding campaign may wonder:
Is it worthwhile?
How difficult will it really be?
What are the true benefits and drawbacks of crowdfunding?
The Pros & Cons of Business Crowdfunding:
We reached out to our network of crowdfunding experts to answer those questions (and a few others that people may not have considered).
Our list includes crowdfunding platform founders, serial entrepreneurs, and people who have run successful crowdfunding campaigns.
It’s a fantastic resource for any founder considering starting their own crowdfunding campaign. Lets dive into the advantages and disadvantages of crowdfunding platform.
Advantages of Crowdfunding
Crowdfunding focuses on communications.
One of the most significant benefits of hosting your fundraising on a funding portal is that you can consolidate all of your investor discussions into a single location.
Prior to funding portals, you had to constantly update a large number of potential investors via emails, meetings, and phone calls, which was a tedious exercise in cat herding.
Centralizing your communications entails more than just email; it also entails constantly updating your fundraising profile so that any new information is immediately available to prospects.
Consider it proactive marketing, which is an important component of fundraising.
Crowdfunding does not always imply giving up equity.
This pro is very simple to grasp. Consider the audience as investors when purchasing a crowdfunding product.
These investors are being rewarded with benefits rather than equity, which is fantastic!
Crowdfunding can be an excellent means of testing the market.
Crowdfunding is an excellent way to test the market without having to create a full website and company.
Crowdfunding generates traction.
Startup investments frequently require momentum. This is due to one investor discovering that another investor is also interested in your transaction. The more people who appear to be willing to invest, the more likely it is that they will all invest.
It’s the herd mentality at work. Concentrating your fundraising on a funding portal allows each investor to see that others have made similar commitments, which makes them feel more at ease making their own.
Crowdfunding helps to grow your market.
When you run a crowdfunding project, you will be targeting a community of people who are already looking to become early adopters.
To begin with, these people are the ideal market for the project’s initial fundraiser. Take advantage of this audience to validate your project!
Crowdfunding has the potential to raise a significant amount of money.
Can raise substantial capital to jump-start your growth and business. The average successful crowdfunding campaign raises around $7,000 in funding.
Crowdfunding can help you validate your offer.
You don’t have to be a big player to compete with the big boys and become one!
Oculus Rift, the Pebble watch (RIP), and Cards Against Humanity all got their start on Kickstarter and went on to become huge successes! They were judged by the market months/years before they were available for sale.
There is a network effect created by crowdfunding.
Although we will argue that funding portals do not find investors for you, it is true that there is a powerful network effect that you can create on a portal that you will not get by simply keeping your fundraising hidden.
The most active fundraise on a funding portal are often featured in newsletters, on the homepage, and shared with other users.
Crowdfunding generates new opportunities.
Crowdfunding allows creators to test their product with an initial market of early adopters before releasing it to the general public.
The crowdfunding campaign outcomes provide an indication of whether your project will be successful in the long run. Consider using a crowdfunding effort as a proving ground.
Disadvantages of Crowdfunding
Crowdfunding does not help you get investors.
It’s a common misconception that if you post your idea on a crowdfunding platform, money will fall from the sky. It’s all a lie.
Successful fundraisers are nearly always the result of the Founder tapping into their own networks, reaching out to prospects in a proactive manner, and creating excitement around the raise. In reality, the number of external links to a crowdfund and the success of the fundraising are directly related.
Scammers abound in the crowdfunding world.
Scammers are by far the most common type of con in the crowdfunding world. There are many projects that have a successful fundraising campaign but fail to complete the project.
As a result of the lack of follow-through, many people have become cynical and the trust between artists and early adopters has dwindled.
Crowdfunding takes a lot of time and effort.
To be truly successful, you’ll almost certainly need to launch a full-fledged campaign that takes a lot of time and effort (as with anything in life and company) and costs money, whether it’s for a professional video, commercials, public relations, or marketing team.
False positives are possible.
Crowdfunding can lead to false positives, which can be devastating for startups. The most prevalent is idea validation, in which a badly promoted crowdfund fails not because the product or service isn’t good, but because it isn’t adequately promoted.
While being listed on a well-known financing portal has a little halo effect, investors will only write a check if they believe you have a fantastic deal.
Crowdfunding necessitates extensive planning.
This is more of a caution than a disadvantage. Do not start a crowdfunding campaign without appropriate planning and pre-launch.
We’ve seen a lot of projects fail because the essential measures were not performed prior to the project’s launch.
Prior to the launch, make sure you do your homework by running advertising, collecting emails, and gaining visibility for your idea.
Crowdfunding is a costly endeavour.
Many beginner entrepreneurs get the logistics and fulfilment component wrong, failing to budget adequately for COGS and delivery in order to make these crowdfunding projects successful and therefore losing money.
Negative feedback can be difficult to deal with.
In the age of The Troll, being in the public domain can be a challenge. Anyone with comments enabled on their YouTube channel can attest to this.
It can be obnoxious or simply negative. It can have an impact on the funded or other funders (for example, a comment that says “I know this funded and he/she is a charlatan” or “this product/service will not work/be any good” can have an impact on your campaign).
Failure’s scope and visibility.
Crowdfunding greatly increases the transparency of the conclusion.
Unlike a bootstrapped or typically funded business, crowdfunding exposes the performance of your early-stage company to the general public.
To sum it up:
There you have it: the various pros and cons of crowdfunding. If you’re still debating whether or not crowdfunding is worthwhile, you’re not alone. While there are numerous drawbacks to crowdfunding, for the right startup, the benefits may outweigh the drawbacks. This article gives you in-depth analysis on what are the pros and cons of crowdfunding?