Is Crowdfunding Worth It?

Its best to weight the risks and advantages before jumping headlong into backing a crowdfunded project.

It is becoming an old adage, "Vote with your wallet." Before crowdfunding, companies had to bring their products to the market before we could decide whether we liked it and wanted to support the company. With the advent of crowdfunding, raising capital for new products and services has become much easier for small companies or individuals to be able to bring their dreams to reality. This puts consumers in the market's driver seat.

How Crowdfunding Works

For people unfamiliar with crowdfunding, it is a process where business or individuals put their idea for a product or service out for the public. The public then decides if the product has value to them. If they decide it does, they can choose how much they want to support the venture. Funding doesn't close until the people close them or a certain time limit runs out. This allows companies to raise more than their original amount. To entice further donations, they usually offer stretch goals that will add to the product or service.

Reward tiers are also set in place to encourage donations of a product. Video games could offer a regular or deluxe copy of the game depending on how much a person donates. Donations can go up fairly high in the price ranges, but so do the rewards usually. One large perk offered by a video game company in recent months included a jam session with developers at their studio.

Outside of products and services, there is also crowdfunding for content creators. Funding essentially works the same. You choose the level of your donation and its applied either by month or by the creator publishing a certain type of content, like a new podcast episode.

Crowdfunding Can Be Risky

Like any venture raising funds, it can be risky to jump into. Businesses can fail if money is mismanaged or product doesn't sell as well as they had hoped. Standard in business is 1 year before a business will begin to see profits. There is nothing stopping potential investors from asking questions about the project and weighing the pros versus the cons.

The Kickstarter platform gives a bit of insurance, in a way. Kickstarter uses the concept "all or nothing" in its funding principles. If you decide to back a project, you won't pay unless the project reaches its initial goal. If a project sets a goal of 20,000 and they only raise 19,995 by their closing date, the backers lose nothing. If they make that 20,000, the service then takes the money from the account you specified.

After a project is funded, it is still possible that things could go wrong. They could underestimate costs and go into debt. They could underestimate their initial release date and have to delay the project. Some projects are listed in a very early stage and there are no guarantees you will get what you paid for in the end.

Crowdfunding Can Be Rewarding

Aside from potential failures, projects can still succeed. Several companies have found great success with the crowdfunding platform. Some of the most well-known projects to come from crowdfunding include:

Successful projects don't have to make millions. Here are a few projects that are just as good:

Backing what becomes successful projects makes backers become early adopters and fuel our ever-growing market. It puts consumers again in the driver's seat on what is produced for our consumption.

All-or-Nothing Versus Flexible Funding

There are platforms that allow what is called flexible funding. These projects will get any money whatsoever that they raise. If a flexible funded project sets a goal of 20,000 and they only raise 5,000, they still receive that 5,000 to do with what they wish. This could be seen as a greater risk because backers are paying for a project that may not have the funds to reach completion.

A Few Notable Platforms

The crowdfunding arena is filled with competitors. Even YouTube is getting in on the content creation side of crowdfunding. Here are a few of the well-known platforms.

Kickstarter

Kickstarter is probably the most well-known crowdfunding source in the genre. The platform has been released in various countries all over the world to allow people to bring their ideas to the world.

All the products listed above as successful crowdfunded projects were funded at Kickstarter. They cover product categories ranging from art to theater and journalism to gaming.

Patreon

Sometimes being a content creator can be very rough. Video creators and writers spend a lot of time curating content that can appeal to their fans. Sometimes this requires new equipment or software.

Those things cost money and content creators, like anyone else, would love to be paid for their work. Patreon allows these curators to earn an income from their work. Some creators ask for donations on a monthly basis, while others may do so based on content release, such as a new podcast episode.

Indiegogo

Indiegogo is a platform very similar to Kickstarter, but they allow flexible funding campaigns on their site. Usually if a project doesn't fit into the Kickstarter categories, the owners will go to Indiegogo to seek their funding needs.

GoFundMe

GoFundMe is a different type of crowdfunding website. This platform allows people to raise funds for just about anything. Fundraisers at GoFundMe has ranged from helping people save their houses under foreclosure to help to pay outstanding medical bills.

GoFundMe allows personal campaigns to business campaigns. Personal campaigns get the donations they raise, regardless of goal. Business campaigns fall under their All-or-Nothing category.

With the success of the above noted platforms, the space will only continue to grow larger as more companies create their own crowdfunding websites for consumer use.

Is It Worth It?

In the end, it is solely up to the backer to decide if they want to invest in crowdfunding. While it has been successful for some companies, it has not been succesful for all. Setting personal goals or aims before backing could be a wise idea. Be wise about where you spend your money. If gut instinct tells you it is a bad idea, don't leap. Go into crowdfunding knowing the pitfalls. I find crowdfunding can be a worthwhile source for individuals or small businesses to get into markets traditional dominated by large corporations.

Published Jul. 1st 2014
  • Kate Reynolds
    Senior Intern
    I really like how you laid out all the options. I haven't had an idea worth crowdfunding yet, but it's definitely something I would consider, and this is a handy guide for others.
  • Mary Yeager
    Senior Intern
    Having worked for a couple of start-ups, its something I've been interested in and following for a while. Hoping to start one of my own soon and do a follow-up on producing a successful project.

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