Pitfalls to Avoid When Opting for Crowdfunding

Pitfalls to Avoid When Opting for Crowdfunding

Crowdfunding is simply an avenue for entrepreneurs to raise fund from a large pool of people to support their businesses. While the concept of crowdfunding has arguably been around for centuries, it is still seen as new to many consumers. A 2015 industry report shows that over 1,250 crowdfunding websites platforms are available around the world and the total amount raised annually is over $30 billion.

Kickstarter and Indiegogo are two of the pioneering crowdfunding websites but now, there are several others that offers the same services and they serve to offer entrepreneurs to be, a chance to perfect their marketing campaign, as well as get feedback and expand visibility to other funding sources.

Below are real life lesson from experienced sources on the pitfalls of crowdfunding and how to avoid them:

• Never undervalue the amount of capital that is needed. This serves as an advantage when angel investors are involved because their wealth of experience becomes very valuable; but with crowdfunding, get funding sizing input from senior advisors.

• Be ready to cope with a horde of naive investors, all expecting current details and results. Get a team of professionals who can handle that, but then that means additional funding.

• Although there might be no investor to challenge it, but never bail out on the business plan or model. The plan adds more value to you. Get professional help to validate the plan.

• Protect your intellectual property. With a large number of unknown investors demanding details, you are highly exposed to potential competitors. Keep all intellectual property details close to your chest.

• Accountability is vital in crowdfunding. Account for the time and cost of campaigns. Crowdfunding is definitely not free. You have the five percent platform fee, taxes on pledges, preparation and social media campaign fee, and the give-back required if you don’t meet your goal.
• Make sure you marketing campaigns are targeted at the right demographics in other to get the right response.

Altogether, crowdfunding has a failure rate of over 50 percent because most of the funded startups fail to achieve success. A business owner will only need to learn from that others have had to endure so they don’t have to pay for the same mistake.