This article continues my series on crowdfunding, started with a general description here.
According to some sources, globally, there are more than 600 functional crowdfunding platforms, which manage to raise billions of dollars every year. Kickstarter, Indiegogo, Crowdfunder or have given entrepreneurs, artists, musicians or non-profit organizations the opportunity to raise money for a cause or for achieving a cultural product.
The persons who choose to support such projects do that based on a creative description of the idea (a brief video spot, most of the times) and may receive in exchange various rewards, services or the actual product (once it is launched on the market).
If they are not prepared to promote the idea on the international crowdfunding platforms, the Romanian young entrepreneurs may resort to local platforms, such as We Are Here, PotSIeu, or Crestemidei. For several years now, these have given financial support to innovative projects, from jazz albums to scientific research or educational programs.
Pros and Cons of Crowdfunding
Roughly speaking, we may speak about two pros and two cons of this financing option. Let’s start with the first two pros:
- The strategy I am talking about allows the entrepreneurs to consolidate their companies and overcome the financial difficulties irrespective of the phase in which the companies are. As long as the general public is presented with a very detailed plan of their future business, the entrepreneur stands good chances to get financing for it.
- Another pro is the fact that besides the funds collected, there is obtained a database of potential clients, which already hold information on the new business, are happy with the results and, furthermore, are interested to buy, test and promote the product.
In respect of cons, we may list the following:
- Before launching the startup, the only way of convincing the public to support it consists in presenting the idea in a sufficiently clear and attractive manner. The purpose is to determine the public to donate, not in order to make any earnings, but just because they trust that the new business will be a success.
- Most crowdfunding websites will not give out the money raised, unless the final objective is reached, that is the whole amount is raised, they will only give out that, as soon as it has been raised.
You may find various tips on a successful crowdfunding campaign from the third part of our series.