Tuesday, 3 February 2015

Is Crowdfunding a Real Alternative for Early Stage Financing?

fundstlouis.org
by Yann Girard: http://yanngirard.typepad.com/yanns_blog/2013/10/is-crowdfunding-a-real-alternative-for-outside-financing.html

I have been observing the entire crowdfunding space for a couple of weeks now.

I was doing this because I was considering it for one of my next projects and one project that I am already running on a crowdfunding platform as you might have noticed.

There were a couple of very interesting things I found out that I felt like sharing with you. Most of these findings made me rethink the entire crowdfunding game and how to best use it. It especially made me wonder about its effectiveness for very early stage projects with limited to no financial resources at all. 

I started by looking at successful crowdfunding campaigns and realized that most of them seem to invest an excessive amount of money into marketing their campaigns.

It struck me when I once visited a campaign on a German platform. After I had left the campaign site I was heavily targeted via a variety of different marketing channels, such as Facebook, Google Ads, etc. These ads always led me back to the campaign page. It was incredible and most probably a very expensive undertaking.

Just a couple of days ago I had a talk with someone that was working in that area and I was told that spending €25,000 on a campaign that raised €100,000 is nothing special anymore. It actually totally makes sense.

The more projects flocking to these kinds of platforms, the bigger the noise. The bigger the noise, the harder it gets to attract potential crowd-funders and the bigger the competition. And what do we have to do to attract attention in a market spiked with a lot of different players?

Well, we better have one of the coolest things on this planet earth or start spending on marketing to attract potential customers. Because if we don’t others will do and our ideas will remain ideas …

So if we should be able to invest a lot of money, before even being able to raise money via crowdfunding what is this crowdfunding actually good for?  Does it even make sense to launch a crowdfunding project if we don’t have any money for marketing yet?

Hell, yeah! We should definitely use and familiarize ourselves with crowdfunding and get our projects out there as soon as we can. Although it might be tougher to raise a lot of money via crowdfunding than finding a business angel, it is still a great tool. It actually allows us to test our assumptions, ideas, projects and products on the market, without having to bear any financial risks or whatsoever.

It's one of the best ways to see if people are actually really willing to pay for our products or ideas, without having to work months and months on a product that no one wants at the end of the day. We shouldn't waste this opportunity and instead try out our ideas.

Even though we might not be able to raise the money we planned to, it's a great first indicator whether or not the idea we are working on is worth pursuing or not ...

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