- On January 2, 2015
- By Michael
What is Crowdfunding?
Crowdfunding is the process of asking the general public for contributions to fund a new project. This project could be a business, charity or artistic venture. Crowdfunding is innovative because it allows entrepreneurs to bypass the “middleman” (i.e. venture capitalists, grants, or other funding sources) and connect directly with consumers who are genuinely interested in making the creator’s vision a reality.
The project owners are the ones who “create” the presentation on a portal, which is a website on the Internet. Project owners connect with the audience (crowd) and share their idea with prospective supporters. The hope is to capture the interest, and spur action of a certain group in the crowd, who then choose to contribute to, or fund, the campaign. This makes them “funders.” The transaction is hosted and processed by a crowdfunding “portal” or “platform.”
Advantages to the Crowdfunding Model
- Forge early and strong relationships with customers; these become your marketing team
- Continuous, transparent conversation with consumers
- There’s room for more potential investors since you can solicit the general public
- The crowd allows you to pitch to any, and everyone; test validity of new concepts; little startup cost
- Easy to monitor and manage – from your own kitchen table!
- Doesn’t always give away equity
- Allows control of the fundraising for the business or project
Disadvantages to the Model
- Can be difficult/stressful (project owners are completely accountable for their success or failure)
- Lots of preparation beyond standard product pitches (requires evidence of potential beyond proof of concept)
- Ideas could be stolen (publicly displayed, no way to operate on stealth)
- It never ends; needs ongoing social marketing campaigns/self-promotion
- Must be very creative about drumming up interest in your project
- Doesn’t always work — let’s be honest: some ideas just aren’t a good fit for crowdfunding
- Varied (and sometimes conflicting) expectations/demands from the diverse group of funders
- Competition: against other interesting projects, with the same audience with the same amount of disposable income