A Crowdfunding Pros and Cons Guide – Is Crowdfunding for you?

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A Pros and Cons Guide to Crowdfunding

Crowdfunding is becoming a buzzword these days. If you have a project in mind but don’t have the necessary funds, this may seem like a very attractive route to take. However, it’s not all rainbows. Crowdfunding also comes with its own advantages and disadvantages. Here’s a pros and cons guide to crowdfunding.

Crowdfunding Pros and Cons Guide – What are the Benefits of Crowdfunding?

Larger Network for Fund Raising

By creating a campaign at a crowdfunding platform, you automatically gain access to as many accredited investors as their number of users and visitors. It doesn’t matter if you don’t have any qualifications or solid business plan laid out yet. As long as your page is visible, you can start interacting with thousands of potential backers for your project. Gone are the days when you personally must approach friends or random strangers or companies to back your idea up. With the crowdfunding platform, the people there actually have funds they are willing to invest if your idea is something that they believe in.

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Market Validation and Feedback

When you launch a project, you are in turn sharing the details of your product and business idea to the public. This instantly brings you the opportunity to engage with strangers. Getting community feedback is essential, as it will provide unbiased perspective on how good your idea really is or if there are some tweaks needed that will significantly improve your product. Take note that this community is the same community of future buyers you are targeting, so actively listening to their feedbacks and taking timely action can save you a lot of costs pre-production phase and generate even more profits or backers for you as you go along.

Marketing and Branding

If you have an intention of establishing a brand for future projects, a crowdfunding campaign can help build interest for your brand and can give you the momentum you are looking for. Think of it this way. You are marketing a certain product but alongside it, you are also acquainting the community with your brand and reputation. In the process, you can even maximize the space by directing these same people to your external pages. This will increase traffic to your sites and if you keep them engaged there, they will keep going back even after the campaign period is over.

What are the Risks Associated with Crowdfunding?

Platform Fees

Starting a campaign will mean that the platform you are using may get a certain percentage or a fixed amount from the contributions you raised. The fees are mainly to help the platform be sustainable; however, as a project creator, the fees will ultimately reduce your take-home money to fund your business idea. This can further pose as a problem if you shelled out initial money to the website and it suddenly goes down. In which case, you lose whatever money you were able to raise as well as the money you personally invested.

Leaking Secrets

A crowdfunding platform operates such that the more detailed your description of your business idea, the more credible and trustworthy you will become in the eyes of the community. However, by openly disclosing information, you risk having competitors copying your idea. Note that competitors may not necessarily be those within the same community but can also be big manufacturing companies who will sell a copy of product at a substandard quality or at a substantially lower price. With this said, you may want to consider visiting the Intellectual Property Office to patent or copyright your idea.

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Risk of Failure and Damaged Reputation

No matter how grand the idea of pooling funds from multiple investors is to support your business venture, you must not discount the probability of your campaign failing. In fact, statistics show that in Kickstarter, one of the most popular crowdfunding platforms with over 18 million backers, the success rate of fully funding a project is only at 37.77% as of this writing. The implication of not meeting your target is that depending on the platform you are using; it is possible that you don’t get any of the funds raised at all even from people who have already pledged their donations. Moreover, in addition to the sunk costs for all the investments you put into marketing your product there, you risk damaging your reputation, thereby decreasing your chances of successfully funding another project in the future.

Crowdfunding Pros and Cons Guide – Is Crowdfunding for you?

After reading this crowdfunding guide – is crowdfunding for you? Initially, crowdfunding may be so attractive as you think about just linking the creators with the funders. However, there is more to this financing option than meets the eye. After presenting some of the pros and cons of crowdfunding, we now have a better perspective on what to expect. It can’t be emphasized enough that crowdfunding isn’t for everyone. As an entrepreneur, you must still carefully weigh your options prior to proceeding.  Understanding the ins and outs of crowdfunding will aid in optimizing your chances for a successful campaign.

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Money Monkeys

Money Monkeys seeks to educate on topics related to finance, entrepreneurship, and the rising fintech innovations. We provide easy to digest articles with the aim of raising financial literacy, cultivating a growth mindset, and harnessing the spirits of fellow entrepreneurs.

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