Have you ever heard aspiring entrepreneurs casually say: "Oh I'll just put it on Kickstarter." I've heard that quite a bit recently and I thought I'd investigate.
People throw around the word Crowdfunding like a party favor. Crowdfunding is the networking and pooling of individual funds for a project, often in return for a gift. Last year "crowdfunding" and "crowdsourcing" were buzz words, and the popularity of Crowdfunding sites still reign supreme. In a recent count, every niche seems to have its own crowdfunding site.
Crowdfunding seems like a great way to fund your startup without the hassle of investors that want their money back, and with instant validation from potential customers. Kickstarter, which has to date provided $786 million (as of Sept 2013) in funding is always a great case study for the benefits of crowdfunding. But what many entrepreneurs don't hear about is the flip side. I recently fumbled across YourKickstarterSucks which shows the sad fate of pitches that should never have been posted to begin with. If you think crowdfunding is the best method for gaining some traction on your business idea, consider the following: 10% of projects on Kickstarter completed their round, without receiving a single pledge, and 56% do not get funding because they don't reach their goal.
The only way a project will be a good candidate for crowdfunding, is if the target investors and donors are both willing and able to align with the project conceptually and financially.
Now, say you do identify a project that makes sense to crowdfund. Here are some guidelines about posting a project on a crowdfunding site to maximize the returns for both your venture and the investors:
- Be realistic about the total goals
- Make project crystal clear, concise and super easy to communicate
- Show evidence of potential future success - through past sales or market research
- Provide compelling gifts for investors/donators