Key Challenges and Drawbacks With Crowdfunding

Key Challenges and Drawbacks With Crowdfunding

It’s no doubt that inventors and entrepreneurs with a promising and appealing project to the masses opt to crowdfund as their ideal source of financing. Also, most individuals with low credit scores or fail to meet the stringent requirements of banks and investors prefer reaching out to the public to pool small investments from intrigued backers and consumers.

But is crowdfunding really the perfect method to inject cash into your project? In this fast-paced modernization era, we have to acknowledge that the internet and, in particular, crowdfunding have opened doors to incredible opportunities for many individuals and businesses.  

Nonetheless, as streamlining and lucrative as crowdfunding might seem, it may not be the best choice for some projects. For example, finding the perfect pitch that appeals to the right backers is not a forte many entrepreneurs excel in. Still, there is more to that. 

After having a sit down with some prominent and successful entrepreneurs who opted for crowdfunding as their primary source of funding, we prepared some of the most shared sentiments regarding possible setbacks one might face through their crowdfunding campaign.  

Key Challenges and Drawbacks With Crowdfunding

Establishing Trust

Trust is often the most significant issue crowdfunders face, especially at the onset of their campaign. Yes, you might have a promising and innovative idea or talent, but how will you win the trust of well-wishers and prospective investors? It gets worse if you have no prior authentication as an established brand or success in the business realm. 

You will be reaching out to individuals or companies, most of who know a little about you and ask them to invest in you. It might sound risky. Bear in mind, with the rising cases of fraudulent campaigns on some crowdfunding platforms; some backers have tightened their pockets. 

Nonetheless, there are means you can build credibility to attract interest from your prospective backers. Of course, it’s unlikely a feat you will acquire overnight, but progressively, you can show you are a credible and honest person in need of capital to make an idea into a reality. 

As a starting point, incorporate social media networks in your campaign. Even better, through some networks such as LinkedIn, you can build a professional portfolio. Get people excited and curious about your ideas, and accordingly, investors will approach you. 

Picking The Perfect Platform

There are a plethora of crowdfunding platforms available. Choosing a website that aligns with your idea can be pretty overwhelming or, worse, a legitimate platform. Kickstarter and Indiegogo are some prevalent and well reputable crowdfunding platforms. As you can imagine, the competition is stiff. However, you don’t have to stick to one platform or give up your campaign simply because you didn’t meet the requirements of a particular platform. 

Of course, it’s advantageous seeking a crowdfunding website with a high number of visitors and running several campaigns. Still, it’s best if you put the following factors into consideration.

  • The total cost to run a successful campaign. Is the price worth it?
  • Security of the website. Do they follow the necessary legal requirements when handling online funding transactions? And in general, their terms and conditions.
  • The type of visitors the platform attracts.
  • What business ideas have the most success. 

Setting Realistic Targets and Deadlines

One of the major cons of crowdfunding, especially reward-based form, is that you will receive nothing after the end of your campaign if you haven’t hit your desired target. Instead, the contributed amount will find its way back to the investors’ pocket. In short, most crowdfunding platforms employ this model, collectively referred to as the all-or-nothing model.

Therefore, it’s vital to set a target that’s not hard to reach and still not so low to meet your financial goals, or else your campaign might be futile and a waste of resources. 

Also, if your goals aren’t realistic or exaggerated, hoping you will attract more investors, then your campaign will most likely fail. Akin to angel investors or venture capitalists, potential backers are on the lookout for individuals with realistic goals without any exaggeration. 

Copyright Issues

An utmost priority before embarking on your crowdfunding crusade should be how to protect your idea from thieves. Not all visitors on crowdfunding websites have the purest intention of advancing your project. Unfortunately, some are there to steal your innovation and start a parallel campaign.

Luckily, there are productive ways you can maneuver through this limitation. 

First, you can file for a patent or copyright before posting on any crowdfunding platform. Professionals such as lawyers can guide you through the process. Also, be wary of how much information you share out there. Do not disclose vital parts of your idea unless to potential backers through private chats. Alternatively, non-disclosure agreements can be helpful. 

Fulfillment of Your Backers

Yet another major setback for almost all types of crowdfunding. Figuring out the returns and incentives to offer your backers is a challenge most crowdfunders face. Bear in mind, failure to deliver promised assurances and rewards is a significant impediment overshadowing the success of crowdfunding campaigns.

Of course, a lucrative incentive or equity will likely allure more investors. But, it might have a substantial impact on your initiative operations, or you may end up giving away too much of your project to investors. 

Consequently, it’s vital to settle for a promise that you can comfortably commit to without breaking your bank or overcommitting your initiative. 

Building Interest Before The Campaign

A common blunder in the crowdfunding realm is creating a campaign before generating interest in your idea from the public. As a result, you will likely spend a lot of time building a reputation and a following intrigued with your initiative. As a result, there is a high chance of failing to meet deadlines and targets. 

Instead, as per most affluent crowd funders, you need to build interest in your campaign tentatively 5 months before the official launch. Get people interested, have a solid online presence, and an amped-up following. Only then, launch your campaign via a prevalent platform. 

Final Thought

Contrary to popular misconception, crowdfunding isn’t easy money. There are several inherent risks and a high percentage of failure. Nonetheless, it’s a great and effective way to generate funds for your project. Heeding to the above challenges and drawbacks and, importantly, avoiding them will guarantee a successful crowdfunding campaign.