Key Challenges and Drawbacks With Crowdfunding

How to Avoid the Crowdfunding Mindfield

Crowd Sourcing you idea
Photo:  Drazen_ / Getty Images

Having a great business idea has always been a desire to everyone right? However, the mind that brainstormed on the idea has to get out there and look for individuals who can fund the idea and make it a reality. Otherwise, without funds, no idea can materialize. Many entrepreneurs come up with innovative and creative ideas but what ends up limiting their hidden business potential is the lack of capital.

The good news is there are many different channels young entrepreneurs can use to attract funds when starting a business. Technology has changed the way business is done on a massive scale. To be very specific, the internet is what individuals who have made it big in the world of business have used to achieve what they have. One of the ways an entrepreneur can use the internet to sell their idea to interested financiers is through crowdfunding. 

Crowdfunding is a way of raising capital for a business through donors via the internet. There are different platforms that one can use to raise cash although not every platform that you fall onto will enable you to get what you want. There are different platforms that have seen people dealing with a specific line of business ideas succeed and others fail and so there is a need for you to properly scrutinize a website before going ahead and making your idea accessible to well-wishers. We have to acknowledge that indeed every business has got its own challenges and crowdfunding is no exemption. Today, we would like to take you through the challenges that you might face if you want to engage in any crowdfunding activity. Every business has its own challenges, and crowdfunding is no exemption. Today, we would like to take you through the challenges that you might face if you want to engage in any crowdfunding activity. 

Earning Trust

Before you go ahead and engage yourself in a crowdfunding campaign in order to raise capital for your business it is good to ask yourself, how am I going to win the trust of the well wishers and donors? How should I make them have faith in me yet I have never recorded any success in business before? The questions can really help you come up with good ways of branding yourself in any platform so as to source funds from different individuals. 

The main issue here is giving the people from whom you need support from credibility. You have the task to create credibility of your brand so as to attract interests from potential investors. There have been cases whereby some people have run such fraudulent campaigns that after getting funded, they go away with the money they were given. With these cases, many investors have really tightened their pockets. So you really need to show that you are a credible and honest person who is really in need of capital so as to make that great idea a reality. 

How About the Platform?

The sudden rise of crowdfunding as a way of attracting investors has seen many internet platforms crop up in recent times. This has really caused a great deal of confusion for young entrepreneurs who have great business ideas and are in search of a way to raise capital. Why? They do not know which platform is legitimate and which one is not. According to research that was done based on success rate, Kickstarter and IndieGoGo were ranked very high. However, this does not mean that every entrepreneur should go there and see whether their idea will be funded by interested investors. There are smaller sites that are also doing well and it would be good if you check them out too. 

Do you have a great business idea that you think will attract any potential investor when you place it in the public domain? If yes, then it is good you consider a site in terms of the number of visitors it attracts, the type of visitors it attracts, the total cost of running the crowdfunding campaign and the terms and conditions of using the platform to raise money. With these factors in mind, then you are now good to go. If a certain platform meets all the requirements, use it to campaign and attract investors. 

Your Targets and Deadlines

One big problem with crowdfunders is the fact that many end up miscalculating their targets within a certain time limit. You have to be very realistic with your goals. Investors want real things that seem to be achievable without any exaggeration. What does this ask from you as an entrepreneur? You need to convince them that indeed what you state in your campaign is something someone can actually believe in. Do not exaggerate your idea thinking that you will attract investors simply because you have made your package so good. Remember that they also have great minds to validate and find out if you are real or not. 

The setting of what you want to achieve after a specific period of time matters a lot when it comes to making your idea successful if you didn’t know. You need to package yourself in a realistic manner without looking as if the whole thing can’t work in the modern world. The more realistic the package is, the higher the chances of attracting investors and the shorter time it will take for you to fulfill your campaign goals. 

Building Interest Prior to the Crowdfunding Campaign

One common failure by many crowdfunders is trying to create the campaign first before working on developing interests of other people. This is where we all get it wrong. As an entrepreneur, you are supposed to get people interested in your idea before launching a campaign for raising funds so as to fund the business. If you do not do that, the campaign will really eat most of your time and you could end up not even hitting your target. 

Thus, if you are really looking forward to have a crowdfunding campaign in the near future, we would advise you to build interest in your campaign for about five months before you launch the actual campaign. This will be easy for you to raise funds since people would already be aware of your idea and will be ready to dig into their pocket to support you. If you do so, your campaign could have a 90 percent chance of raising enough capital that you really wanted to kick start your business. 

Fulfillment of the Backers

When you engage in crowdfunding, you have to know that the backers or rather investors who funded you when starting your business will need rewards in return. Some may want a share of your company while others might only need you to send them the initial products that your company manufactures. This is one key area where some entrepreneurs go wrong. After the crowdfunding campaign is over, they start to complicate issues. If you do that, all the investors will doubt your credibility and this will obviously affect your brand image. 

What does this mean then? You need to come up with proper ways on how you will fulfill the desires of your investors. You have to be prepared to go an extra mile so as to ensure that all the people that funded you are satisfied with what you reward them in return. If it is a share of your company, then be genuine with that and if it is about the supply of products, then it is good to commit yourself and meet their desires as you had it in agreement during the campaign. If you can do so, then your life in the business world will actually flourish. Anytime you have a cash crisis, these investors who funded you before even your idea materialized will be the first ones to rescue you since they would now have faith in you as well as in your brand. 

How Are You Supposed to Protect Your Idea?

When you go and put your idea in a certain platform you should bear in mind that there are guys who are just there to steal your idea and start a parallel campaign. With that in mind, it is therefore good for you to make sure your idea is fully protected against such theft. Otherwise, you might end up with no idea at all since it would already have been stolen and ​maybe funded by the same investors whom you are trying to talk to. So, what are you supposed to do to avoid such a case? 

To limit other individuals from stealing your idea, it will good for you to create private chats with potential investors. Do not post what you have to the public. With private chats, you are ensuring that no one will snatch your idea away compared to doing it in the public. Also, it is good to issue non-disclosure agreements between you and potential investors. Another way is to ensure that your idea has a copyright before you post it in any crowdfunding platform. Look for a lawyer to help you through this process if you want to be safe.

How Much Should an Investor Get as a Reward?

This is something that you really need to think about if you want to make your business financially stable at all times. You should be very calculating not to give away too much of your business to outsiders. This is a no. You are supposed to own more than 50 percent of the whole project. Thus, your investors depending on their number and their contributions should have the rest. Do not put yourself in a situation whereby your company or your project is there to meet other people’s financial needs. You are supposed to be the main boss and nobody else. If an investor is willing to fund you, have an agreement which does not make them superior to you and at the same does not put your enterprise at risk of a financial crunch. 

In a case where an investor insists on certain terms and conditions, you are free not to engage them any further since we are very sure that if the idea is really viable, then definitely they will come running after you and end up agreeing to your terms and conditions. 

What If I Fail at My First Trial? Will It Ruin My Reputation?

This is a very critical question that you should actually ask yourself before looking for any platform to start a campaign. Why? Once you fail, there is a likelihood that your reputation will be affected. No investor would want to fund somebody who was funded and ended up failing. What this means is you need to be very calculative in every step that you take. Before you look for an investor, be very sure that your idea is viable and sounds successful even before you tell someone how you are going to ensure that it succeeds. 

Therefore, it is good to protect your reputation and your brand image as an upcoming entrepreneur. Potential investors are there but they want to work with someone whom they are fully sure of. If your first campaign goes well, then any time you will approach them with another potential product launch you can be sure that you will get funded. Thus, creating a good reputation and brand image to any small business is key to attracting and keeping willing investors.

To conclude, crowdfunding is not an easy thing as many young entrepreneurs think. It needs the right strategy and the right platform. These two go hand in hand on your path to success. Having the right platform and not accompanying it with the right strategy will take you nowhere and vise versa. Therefore it is good to have your idea as a full package before you start any fundraising campaign.

You have to take your time and see how you will avoid the above drawbacks that other individuals have encountered in earlier campaigns. You have to win the trust of your investors, set realistic goals, build interest in the campaign before you even launch it, work very hard to fulfill the desires of your investors and make sure that your idea is fully protected against any kind of theft. 

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