Crowdfunding – The Future Venture Capital?
When I wrote my first e-Book “Financial Management for Small Business – Made Simple”, I did a short section on funding a business start-up. Since then, “crowdfunding” has grown thanks to the power of the internet and the likes of Indiegogo, Kickstarter and others.
Crowdfunding uses the power of the internet to match investors and entrepreneurs. I’ve participated twice so far – buying other peoples’ goods, that is - with good results. So why use crowdfunding, and what do you need to do?
Firstly, crowdfunding allows you to raise small amounts from many people. Whilst I might not to want to sink 10,000 (US) Dollars, Sterling Pounds or Euros (let alone 1,000) into some venture, I might feel that it’s worth the risk to part with, say 50. If the venture doesn’t succeed, I haven’t lost much (except my pride). If it does, I get a useful tool or other item and feel a warm glow of satisfaction for helping a small business.
Second, crowdfunding doesn't limit you to your home market; organisations such as Kickstarter or Indiegogo have international audiences, so the chances of raising funds are higher as you reach out to a larger audience.
Third, assuming you’ve researched your product well and made a good “pitch” (usually a video), the amount of funding you achieve will give you almost immediate “validation” for your product - in other words, is there really a market for it at the price you are charging?
So, assuming that the above appeals, what are the downsides? The first and obvious one is that you don't achieve your funding target. I’ve seen cases of starters being highly oversubscribed (over 2,000 times) as well as horribly under-subscribed. The great thing for investors is that they will not be billed if the minimum target isn’t raised and the project doesn’t go ahead.
Second, assuming that you get your funding, you have to deliver. Crowdfunding organisations depend for their credibility on their start-ups delivering what they said they will when they say they will. If you don't get this right, you can get an awful lot of people around the world really angry, at great risk to your reputation and credibility for the future. Do your research: make sure that suppliers, manufacturers and assemblers can do what they promise by the deadline promised. You don't want one of them backing out because of bankruptcy, legislation or a bigger order coming in at the last minute from somewhere else and moving you down the list. Have contingencies and build these into your pricing. Similarly, make sure your delivery and distribution channels are robust so that stuff can be delivered to you and to your buyers. This will probably take up most of your time.
Third, always check, check and check again with your supplier. I saw a recent case of a start-up reaching its funding goal, only to find that their first shipment of goods from the supplier was entirely in one colour, instead of the variety of colours ordered. The CEO had to reach out to all investors to explain what had happened, that they were sending single-colour orders to those who had ordered only that colour and that the rest would receive their “multi-colour” orders as soon as possible. We don't know if this was due to a breakdown in communication, or the supplier trying to “pull a fast one”. It might have been avoided by having someone on-site to check the first shipment.
Finally, make sure that you produce the quality you promised. You may get all the other parts right, but if what you finally deliver isn't what you suggested in your pitch, then you have a problem. Read some of the reviews on Amazon to see the disappointment people feel when they receive goods that they consider aren’t up to the quality standards promised (or implied) in the description of goods.
In short, crowdfunding is a great way to fund your start-up and build a reputation if you can make it work.
I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My websiteprovides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Financial, Selling, Strategy
posted by William Martin @ 08:17
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