Crowd funding in the digital era has widely been a province of causes, special projects and artists who do not come with the expectation of any profits. You might be able to procure a front row ticket or an awesome T-shirt from the crowd funding investment, but not much more. While it is easy to think of this concept as an ideal way to get capital for a creative project, it requires an indistinguishable amount of preparation, good concept and an existing community with a little drop of luck to accomplish the goals. Here are a few pros and cons of the fundraiser concept that can help you start your small business at ease.
- Capital Access: For funds that cannot be “loaned” from the banks and collected in a short time period, crowd funding is a viable option. While this is a no brainer, but there’s more to it than finance. By procuring cash, startups can do much more than reducing risks and validating the ventures before tapping into subsequent equity. This allows an integral pathway along the fund sourcing chain.
- Building awareness: Crowd funding is an effective means of building brand awareness. The donators spread the word of mouth in the background while you work on your book or film!
- Press coverage for free: Crowd funding can often be newsworthy. If the campaign had been performing particularly well as to catch the eyes of the ‘media’, free press coverage comes complementary with the deal. And who would deny a little publicity before a breakthrough?
- Feedback: Whether a campaign accomplishes its goals or not, you will always receive feedback on the project. If people are swayed by the pledge and quality of the project, you know it’s going to be a quantum leap. If it escapes their notice, you know it need some tweaking or going back to square one; either way it's far better than spending a fortune on a startup business to unravel the truth couple of years later.
- All or None: In planning a fundraising campaign, an entrepreneur must calculate the goal appropriately. This is because a lot of crowd funding platforms stipulate that the money from funds would be released only if the garnered funds are equivalent to the funding goal or beyond.
- Reputation at risk: If the campaign fails to achieve its goals, the project lingers on the site for others to see, putting an entrepreneur’s reputation at risk.
- IP theft: A few people argue that putting confidential projects on internet might expose them to IP thefts through a replication of the prototype design or company’s concept by a vying competitor. Crowd funding is not a wise choice for a unique project as it could be a menace to the company’s viability.
- Speed: One of the major drawbacks of this concept is that it doesn’t allow enough time to wind up the project as it needs to be ready within months of termination of fundraising campaign.
Although the “Pebble smart watch” and “Spark Core” were an outstanding crowd funded success, it could always mean the same for you. Evaluate both sides of the coin before you take the plunge!