If you are thinking of launching a Kickstarter, you are probably considerind the pros and cons of crowdfunding.
Today we will review 29 pros and cons of this fundraising tool to help you make your decision.
These points apply to any crowdfunding platform. For clarity, we have made a note if there is a specific pro or con for Kickstarter or Indiegogo.
Before you decide to launch a campaign, it’s extremely important that you look at both the good and bad aspects of crowdfunding.
Pros of Crowdfunding
Cons list is below the Pros list.
1. Low risk
Crowdfunding requires a very low investment before you start the campaign. With a platform like Kickstarter, you do not have to fulfill the rewards unless you reach your funding goal.
This means there is no obligation to do anything if you do not reach the goal. This is a huge benefit that is often overlooked.
2. Increased exposure
Using a crowdfunding platform can help spread your idea. The platform often helps you promote your campaign and your brand. Kickstarter as a platform gets more exposure than others. For this reason, it is a good place to host your campaign if you are looking to get more press.
Crowdfunding platforms are built on requested technology solutions. This quality makes it easy to set up and launch a campaign even if you’re technically-challenged. Using a platform means you don’t have to set up the more challenging technical aspects of online funding such as payment processing, SSL, an online store, etc.
4. Tap into a larger audience
Launching a crowdfunding campaign can help you get your idea to potential backers that otherwise would not have known about your project. These robust communities already have a large network of potential supporters.
Over 12 million people have previously backed a Kickstarter campaign. This is a lot of people familiar with the idea of crowdfunding. This familiarity makes it easier to raise money as potential funders already understand how crowdfunding works.
5. Community makes it fun
It should be noted that launching crowdfunding campaigns can be fun and enjoyable. There is a lot of excitement around the launch and success of a crowdfunding campaign.
This has created an active and helpful community. There are a ton of resources online (good and bad) about how to successfully launch a campaign.
6. No equity
Though equity crowdfunding is now available, most crowdfunding campaigns do not give supporters equity in the project. This gives you more control over your company or product. You can raise funds without granting ownership to others.
After the JOBS act, there are now crowdfunding options that do allow you to raise funds and give equity. As noted above, this is called equity crowdfunding. For the purpose of this article, we will consider that a separate type of funding source though it shares many of the pros and cons.
7. Leverage small donations
Crowdfunding allows you to leverage many small donations to raise a larger total amount. Without crowdfunding, this type of small donation is not feasible. Instead of taking a lot of money for a few people, crowdfunding allows yo to take a little bit of money from a lot of people.
8. Social media loves crowdfunding campaigns
One of the best ways to spread your campaign is through social media. Launching a campaign creates a news event which people can get excited about. Often your backers will share your project on their social media page which offers more exposure than if you just launched a product or service without crowdfunding campaign.
9. Creates a research source
Using research is incredibly important when launching a new business. Once you have a list of backers, you can use them as a data source for developing your products. You will be able to survey them with key questions as you continue to develop your concept. Without crowdfunding, it would be more difficult to find this list of engaged users who are interested in your product.
People often spend great deals of money to build a product, service or idea and then launch it into the world.
The problem with this is that you don’t know if people are actually interested in the idea until after it launches. By crowdfunding, you are able to validate your concept before actually spending time or money on the fully completed product.
To validate your idea you want to make sure you have answered the following questions:
- I am solving a problem people are interested in solving
- People will give me money to solve this problem
- I can do this and be profitable (or break even at least)
11. Negative cash to cash
In business, negative cash to cash means that you receive money before you render services. This helps reduce risk and requires less capital to operate. By getting supporters’ money before delivering the project, you are raising funds through the generous donations of others without having to spend your personal money.
12. Free PR
Crowdfunding campaigns offer journalists and influencers an exciting and timely news story to report on. Campaigns offer a different take than standard product launches. While it can be difficult to get press for your crowdfunding campaign, once you have some the momentum will continue to build. Sending a press release for your crowdfunding campaign will not guarantee publicity, but it is possible to get free press by launching a campaign.
It’s easy to communicate with your backers through a crowdfunding platform. These platforms encourage updates throughout the process to engage the backers. There is more transparency in how the project is evolving due to this communication with all stakeholders.
14. Saves You Time
If your idea is terrible, you’ll quickly find out because no one will back your project. This result will save you a great deal of time compared to the traditional business model of creating a product and then trying to sell it to others.
It also allows you to take an idea and get funding in less than 30 days. It can be a quick way to raise money and get started actually fulfilling your campaign promises.
15. Gives you a headstart
If you are looking to start a business, crowdfunding can give you a head start. It allows you to launch your idea quickly with minimal personal financial investment.
Once you have a successfully funded campaign, you can reach out to your backers for feedback. This can be valuable as you can ask them about product specific features such as preferred colors.
Cons of Crowdfunding
After reading the list of pros, you may be ready to jump in and start a crowdfunding campaign.
It’s not all great.
We are a website focused on crowdfunding, but we have to admit that there are downsides of the idea. Like everything in life, there are trade-offs. Here is our list of 11 cons of crowdfunding.
17. Investment of time
Though it may be less than a traditional fundraising route, you still will have to invest time in the project. The time required will be less than actually carrying out the entire project and then moving into marketing, but a campaign will still require your time.
When I talk to founders, time is the one key aspect they underestimated. Make sure you set aside sufficient time to successfully prepare and run a campaign.
18. Investment of money
Though it is possible to launch a crowdfunding campaign for free, you probably will have to spend a little bit of money launching your campaign. Costs may be related to preparing a model product or investment in promotional materials such as photography or videography. It’s a good idea to create a budget before you start creating a crowdfunding campaign.
If you just look at the most successful Kickstarter videos, it will look very easy to launch a successful campaign. Do not be fooled. If you do not already have a large audience, it will take a considerable amount of time to market your campaign.
20. Risk of failure
In no way is this the reason why you should not launch a campaign. Yet, it should be noted that failure of your campaign will be very public.
For many campaigns, not reaching the funding is not the end of their project. Often, they will revise, improve and relaunch at a later date or continue their project with funding from a different source.
You actually have to deliver the project to your backers. This is often easier said than done as many crowdfunding campaigns have struggled to fulfill their initial timeline. While completing a successful crowdfunding campaign is a lot of work, it is only the first step in a larger project.
Transparency falls on both the pros and cons list. If you’re successful in raising funds, you will have to communicate with your backers at all times. You will have to tell them about major and minor setbacks. This can be embarrassing if your product is delayed or has significant issues. With a traditional business, you wouldn’t have to be as communicative with customers as they invest after the product is prepared.
If you are launching a crowdfunding campaign, you probably have to pay that platform a fee. The fee is not expensive but if you are launching a major campaign with a signficant following, it may make sense to crowdfund without a platform. We actually built a calculator that helps you understand what fees you will pay to Kickstarter.
24. Less flexibility in project
Once you have launched a crowdfunding campaign, you are promising something very specific to your backers. This promise makes it difficult to change major features of your project during production. It is hard and unwise to promise one thing, take money from people, and then not deliver.
For this reason, it is crucial to fully think through your project and potential issues or changes before launching.
25. Does not work for non-consumer projects
We have yet to see crowdfunding work really well in a non-consumer marketplace. For example, launching a crowdfunding campaign for a business-to-business venture is tough. It is possible in the future that we may see this become more prevalent, but right now, this is not an effective use of crowdfunding.
Crowdfunding works well because backers are clear on the specific, tangible consumer product they will receive in exchange for their investment. Services or other non-tangible products are difficult to sell in campaign form.
Most platforms have strict rules that you need to follow. This gives you less control over your project. For example, Kickstarter has the following set of rules:
- Projects must fit in their categories
- Projects must have tangible thing to share
- You cannot fundraise for charity on Kickstarter
Since your project is unfinished, you will be launching your idea to the public before you can actually deliver. For many products, this could be risky as you are giving your competition an inside look at your future roadmap.
Though it is unlikely, I often see the question, “Can a Kickstarter idea be stolen?” That question on Quora got over 20,000 views alone.
It is important to understand that every idea can be stolen. Just look at how Instagram has copied Snapchat or how those off brand sodas that taste just like Coke. The reality is the success of the idea is going to be dependent on your execution. It’s important that you have built a stellar team to properly execute.
If you are really worried, I recommend looking into a patent. The issue with this route is that you need the finances to bring the infringer to court. Your best bet is to quickly move to market and position yourself as the market leader.
28. Issues for non-US Citizens
Kickstarter in particular only operates in a few countries. This limitation creates issues for individuals looking to use crowdfunding from other countries. Some platforms have less rules around location so crowdfunding through establish platforms is still possible.
29. Access to funds at end of campaign
Most platforms do not allow you to get access to pledged money until the end of the campaign. This means you have to wait until your project is over to get the money pledged. This could be as long as 60 days depending on the duration of your campaign.
Does it make sense to crowdfund?
Crowdfunding can be great for some projects and terrible for others. If you are trying to decide if you should crowdfund your project, it’s a good idea to look for similar ones on popular platforms. See if there are crowdfunding projects that are related to yours and have been successful in the past. If you do find some successful projects, then crowdfunding is probably a good place to launch your idea.
Another important consideration is how easy it would be to fund your project without crowdfunding. If you want to keep your product a secret until you launch, crowdfunding is probably not for you. Carefully weigh your options before making your decision.
Let us know in the comments section below what you decided and why. Also, let us know if we missed any pros and cons and we will add them to the list!