The Promises And Pitfalls Of The Crowdfunding Path


Crowdfunding campaigns have a reputation for being an easy way to generate funding. Between 2012-2015, crowdfunding campaigns raised $16.2 billion dollars in the United States alone.

While crowdfunding can generate fast funds for your business, a campaign can still fail even after reaching its financial goal. For example, some campaign creators can’t deliver on promised rewards because of manufacturing problems and delays, while others run out of funds because they didn’t plan well enough.

If you’re going to launch a crowdfunding campaign, you need to keep your eyes on the promises while avoiding the pitfalls.

1.Choose the correct model

When pursuing startup business financing with crowdfunding, carefully consider each model before launching your campaign. Crowdfunding’s three models are rewards, debt, and equity rewards. The most popular model, according to Statista, is equity, but what’s popular might not be right for you.

All three crowdfunding models provide incentives for backers to invest, but not all models will work for every business. For example, if you don’t have tangible goods to offer, you’ll have a difficult time being successful with the rewards model. For instance, say you’re producing a music video and need $5,000. Offering a digital copy of your music video or credit in the video as a reward isn’t enough. Your music video will be available for free anyway, and people don’t value digital goods like they once did. If a copy of your music video is all you can provide, you have to spice up your rewards like getting a cameo in your video, or granting exclusive interviews on set to bloggers.

The advantages and disadvantages of each model vary business to business. For example, the equity rewards model provides investors with a percentage of ownership stake in the business, but comes with high risk for both the business and the investors. Having ownership stake in a business can be lucrative, but the business has no obligation to return the money until they’re profitable or sell the business.

To be successful with the equity rewards model, you need to know how to generate enough funds to provide a return. If you can’t, you won’t have to refund your backers, but your reputation will suffer. If you’re not a seasoned expert in business, it’s wise to consult a financial advisor prior to launching an equity rewards crowdfunding campaign.

2.Get familiar with what makes a campaign successful

Who backs most campaigns? You need to know who’s spending money and how campaigns achieve success.

Here are some crowdfunding stats to inspire you:

  • Men make up 64% of crowdfunders
  • Most crowdfunders are aged 25-34 (28%)
  • August has the highest percentage of successful projects (10.38%)
  • Wednesday is the most successful day for pledges, bringing in 17.5% of funding
  • Most pledges are made between 12pm-2pm
  • Technology projects aren’t the most successful, but they pull in the highest dollars at 23.62%
  • Music projects are the most successful crowdfunding projects (18.01%) followed by film and video (17.2%)

3.Be intentional with your trailer video

 Don’t do what Melissa Joan Hart did when she tried to raise $2 million dollars to produce a script for Darci’s Walk of Shame. The famous and talented actress managed to raise just $51,605 before canceling the campaign. Her campaign’s failure was probably due to a bad idea.

In her introduction video, Hart’s mother tells her about the script Darci’s Walk of Shame, and wants her to play Darci. Hart responds, “people don’t see me that way. They see me as Sabrina the Teenage Witch, I don’t know anyone who’s gonna put me in a movie like this.” This might seem like an innocent part of the script, but it’s dialogue that may have unintentionally talked viewers out of contributing by reinforcing Hart’s image as Sabrina and not Darci.

 4.Be professional and transparent

Backers have lost millions of combined dollars to campaigns that turned out to be scams. For example, in 2015, iBackPack promised an urban backpack that could store, charge, and broadcast hotspots while providing the storage space of a regular backpack. The campaign raised over $720,000 across two crowdfunding platforms. Then, it disappeared. YouTube videos were deleted, updates stopped, and nobody has heard a word since.

If you don’t have an existing reputation, and your campaign isn’t professionally done, potential backers will be cautious about giving you money.

Backers know they’re taking a risk when investing in a new company. Investing in a new project from a successful company is also a risk. However, your goal is to get potential backers to see your project as a worthwhile risk, and these tips will help you do it.