Pros & Cons of Crowdfunding
Crowdfunding is becoming an increasingly popular way for creators to raise money and start businesses. There are of course a lot of upsides to using crowdfunding sites such as Kickstarter and Indiegogo but what is often overlooked are the downsides. Below we have listed some of the pros and cons of launching a product via a crowdfunding campaign:
- Raising Funds: The obvious advantage of using Crowdfunding is that it gives creators the ability to raise finances in order to fund their ventures. $3.71 Billion has been raised so far on Kickstarter alone and the average successful Kickstarter campaign raises $25,671.
- Control: In comparison to traditional funding methods raising money through crowdfunding means that creators are able to generate investments without giving up a percentage of their company. This allows them to have greater control of their business.
- Validate Market Demand: Crowdfunding allows creators to gauge the demand for their idea before bringing it to market. This allows creators to determine if it is worth investing in before they have spent all their time and money.
- Consumer Research: Running a crowdfunding campaign gives creators access to a wealth of consumer data. Not only can creators test out ideas, but they can also communicate with backers about how to make the product better.
- Marketing: When it comes to free marketing-nothing beats sites like Kickstarter and Indiegogo at generating publicity. These sites attract millions of visitors from around the globe including bloggers, tech magazines, investors, and more.
- Giving away your intellectual property (IP): The main disadvantage of crowdfunding is the necessity of making public your intellectual property. This can lead to copycats stealing your idea and creating a clone of your product. Sometimes before you’ve even finished your campaign: Stikbox selfie stick case.
- Workload: Running a crowdfunding campaign by itself takes a lot of work, many experts recommend to start planning the campaign at least 4-6 months before the launch. Assuming you’re working full time on it.
- Expense: Although it is possible to create and run a crowdfunding campaign for free, it is very difficult. Creating content for your campaign can be very expensive and time-consuming. Having a professional introduction video, for example, can cost upwards of €7,000.
- Fees: A final downside of using crowdfunding sites such as Kickstarter and Indiegogo is the fees. Generally, the fee is about 8-9% of the total funding raised, broken down into 5% for using the platform and 3-4% for transferring the money.
Crowdfunding can be an invaluable tool for creatives to bring their projects to life but it is not without its drawbacks. Whether it is right for your product depends on a range of factors, such as the type of product, time frames, funding amount, and more. But ultimately it’s up to the creator to decide whether or not the pros outweigh the cons. If you want to find out more about crowdfunding click here to check out our crowdfunding tips.