Crowdfunding Theory Vs Crowdfunding Practice

by Startacus Admin

At Startacus we will always play the marching tune of crowdfunding - it is one of the most useful tools in the entrepreneur’s arsenal, and a must have resource for so many startups.

Why is it though, that a lot of companies struggle to utilise it to its fullest potential. We fear we may have figured it out. It’s a simple misalignment of Practice vs. Theory. Taking on board the theoretical use and actions of using crowdfunding without doing due diligence and finding out that there’s a certain amount of red tape, actions to complete and overall process downfalls that need to be accounted for. To make this easier for you, we’re going to lay out some useful pieces of advice regarding the Theory and Practice of crowdfunding.

First of all, let’s just take a quick gander at the overall theory of a crowdfunding campaign;

The idea is to create a successful pitch/graphic/video/infographic on what you plan to fund. This could be a new product, business idea or even just to improve equipment. That being done, the next step is sharing the campaign across as many platforms as possible in order to reach as many people as possible. Then finally, offering rewards in exchange for varied levels of donation is commonplace. Therefore you get donations, but they’re never for free. Not in their entirety. That about sums up the overall theory of crowdfunding.

Seems pretty simple, you get people to fund an idea that you convince them to believe in, in exchange for some form of reward. Free money right?

Well, we’ve looked over a few failed campaigns and businesses with difficulties and looked at how their campaigns backfired.

So let’s break it down:

• Creating the pitch, video, pictures, infographic

• Marketing and Sharing the campaign

• Creating some reward system for donations

• Managing the financial side of the donations made

Now let’s take a look at how the practice contrasts to the theory.

• In creating the pitch, videos etc, there’s a cost factor, and that’s just for creation. If the materials aren’t any good or ultimately unsuccessful, then that’s time and money wasted, especially if the campaign doesn’t reach it’s mark.

• Marketing and Sharing, depending on who’s operating this and whether the materials used to market the campaign are strong, will ultimately play a role in the success of the campaign, weak resources equal a failing campaign.

• This is one of the most difficult parts of the process, offering a reward for donations. This can bleed a lot of your income just to actually generate the income. Finding the balance between an affordable reward and a bank breaking one is difficult, so do tread carefully.

These all lead onto the final point, and one of the most crucial pieces of startup advice;

Managing the finances in every aspect of your business (crowdfunding included) will ultimately spell the difference between success and failure.

The practice is ultimately an exercise in costs over profit. Factoring in costs of content, fees, rewards and marketing, and subtracting that from the goal of your campaign, and then moderating what you’re asking for accordingly is the key. Bear in mind that if the cost far outweighs the asking amount, perhaps asking for the overall whole amount may be too much, or perhaps the fund may not cover particularly costly rewards or material. If that’s the case, long before even launching, just find a more cost effective alternative to all of this.

If you are going to launch your own crowdfunding campaign, we can help you through our free crowdfunding support package!

If you are thinking of Crowdfunding your business you might like to take a look at these recent posts on the subject;

Why consider seed investment via crowdfunding

6 SME Options beyond overdrafts

Crowdfunding basics for startups

 

Subscribe to our newsletter

If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.

• #crowdfunding
• #crowdfunding theory
• #crowdfunding practice
• #

Published on: 23rd January 2015