Crowd-funding is one of the more exciting developments in small business, offering a viable alternative to traditional financing. Crowd-funding myths however, have helped ensure it remains a misunderstood approach. Guest contributor Allie Cooper debunks 5 myths about crowd-funding that could derail your business. – Art
Kickstarter, IndieGoGo and the world of crowd-funding has gone from a dream concept to one of the best ways of getting a small business off the ground, and all within
a couple of years.
However, you’ll find that there’s quite a considerable amount of misinformation out there about crowd-funding. We thought it would be best to go through a few of the worst of them and show why they’re not true — in case you base your crowd-funding plan around them.
Without further ado, allow us to present some seriously weird crowd-funding theories.
5) Crowd-funding is less risky than a traditional investment approach.
There are no assumptions about this new form of funding more dangerous than this one. With traditional investors, you make your case, usually to one or a small handful of investors, receive your money, and engage in a traditional investor-business relationship.
With crowd-funding, you’re not dealing with professional investors – you’re dealing with the public. The same public who will ask questions relentlessly, those who won’t understand some of your perfectly logical business decisions, and who will cry foul at the slightest hint of bad news.
The consequence of ruining your relationship with your investors is the same – you lose your funding. But the public reputation damage you’ll suffer is even worse and far more likely to occur, even if nothing is really wrong.
4) The public is easier to please.
For the same reason the public are unstable investors, they’re also unstable cynics. Bear this in mind when writing up your pitch draft and producing your video (see the next point for why a video is vital), because assuming that they will accept your claim that this will be the best product since the iPhone is a really, really bad idea.
Provide evidence, give them diagrams, avoid jargon wherever possible, and look at everything you’re going to show them from the perspective of someone who thinks you might be a scam artist. It’s upsetting to think that people may view you this way, but when you’re asking a bunch of average John and Jane Does for a hundred thousand dollars, eyebrows will remain raised until you lower them with facts and reassurances.
3) Your pitch doesn’t need to be as thorough.
Oh, but it does! Recently there was a high-aiming Kickstarter for a major videogame series being resurrected, and initially, there was no media on the page. Nothing. No images and no video. While it still hit its funding target and media did appear eventually (nostalgia helps when it comes to crowd-funding), many people were insulted by the sheer lack of effort.
If you’re not being just as meticulous and ensuring your pitch is as impressive as if you were presenting to a major investment outfit, then you’re going to risk driving people away. These aren’t just customers, either – they are investors who will allow you to actually launch your product, so don’t treat them with any less respect when it comes to preparing an impressive funding page.
2) Use your friends to start funding off.
This seems like a good idea, doesn’t it? Have your friends and loved ones dump a quick thousand dollars in the pot just to ensure you look legitimate, as suggested here. This, however, also opens you up to serious scrutiny. Did it ever occur to you that people you don’t know may Google the first handful of investors and realize they all know you personally?
If anything, you’ll then look far less trustworthy. It’s scary looking at a big zero, but if you’re marking the funding process well enough, this shouldn’t happen anyway. Don’t use people you know as your sole launching pad – their bias will taint other people’s views of why they should put their money towards your idea.
1) “I’ll only crowd-fund part of the money I need.”
Whatever you do, never do this! It’s all the cash, or none of it. If you need a million, don’t crowd-fund for 100,000. Because if you do, and you can’t get the other 900k, your project will fail and you’ll have actually broken the first rule of all crowd-funding platforms – if you offer something in return for reaching your target, you must deliver on your promise or refund every single investor on the project.
Don’t assume you’ll end up with 100% of the funding you needed or that other investors will pull through. Lying in your crowd-funding pitch and risking an entire project and your professional reputation because you want to make it easier to hit the target is a silly move.