For a few years now, crowdfunding has become a new tool for start-ups to fund their projects. There are many crowdfunding websites (for example Kickstarter, Indiegogo and GoFundMe), but all of them share the following model: a platform which allows entrepreneurs to launch a fund-raising campaign for their projects and to get in touch with potential supporters (also called “backers”), who make the realization of these projects possible – thanks to their contributions or donations.
On these sites, you can find a large variety of campaigns focusing not only on new technological tools, but also on new food innovations or even helping someone in need.
Two of the most famous and successful campaigns are “Exploding kittens” and “Flow Hive”. The first one is about a card game which was launched in 2015 on Kickstarter. The initial goal was to reach 10,000 dollars, but the creators managed to raise almost 9 million dollars in just 24 days. The latter is an innovative beehive box that allows bee keepers to harvest honey without disturbing the bees. The project was launched on Indiegogo in April 2015. More than 13 million dollars were raised in less than a month. These examples are only two of many that show how successful crowdfunding campaigns can be. Everything you need to have is a creative idea that excites potential backers and get them to investing in the realization of the project.
But is crowdfunding really the best way to fund projects?
Certainly, there are a lot of advantages for both the entrepreneurs and the consumers or supporters. The biggest advantage is that start-up companies can raise money more easily than via traditional means (e.g. bank loans or private investors). In fact, companies don’t have to worry about negotiating with investors and don’t have to deal with finance charges – in this way it could also be less time-consuming. Also, the entrepreneurs can find out how much the consumers are interested in the product or service, or if they like it in the first place. In addition, they can count on their supporters for striving to promote the project which results in an extension of the customer base. Furthermore, the backers often receive particular benefits for their support, such as a discount if they purchase the complete product/service or special gifts and gadgets. Finally, fund-raising campaigns usually provide a higher degree of transparency, which means that the progress of the project is visible and the funders are in close contact with the entrepreneurs, giving them feedback if it’s necessary.
On the other hand, there are some disadvantages that you should consider before launching a crowdfunding campaign. It could be a problem if you don’t protect your idea with a patent or copyright. In this way, someone who sees your project could steal it, and then it could be difficult to prove that you are the original inventor. In addition, once you raised the money, you cannot change your project drastically. From the consumer’s point of view, there are other disadvantages to consider. In some campaigns, companies promote some extra characteristics or options which can be unlocked only if a certain amount of money is reached. Well, sometimes projects depend too much on the sum of money collected and are in the end not realized after all.
In conclusion, crowdfunding is a great possibility for start-ups without a big budget to realize their projects. Crowdfunding strengthens a country’s innovation capacity, because creative ideas that could not be realized without help are supported and put into action. Especially when the project is not too complex and the realization does not need a big investment, founders can take crowdfunding into consideration. However, you should always be aware of the possible disadvantages and potential problems that this kind of funding can involve. But: If you consider all risks and decide to give crowdfunding a try, maybe with a bit of luck your dream can come true.