A Reality Check on Crowdfunding
Crowdfunding is one of the biggest buzzwords in entrepreneurship. The Securities and Exchange Commission just released a 585-page rulebook, a long-delayed document that effectively legitimizes its place in modern business. Sites like Kickstarter and Indiegogo are not just a cool way to help a friend launch a passion project or support the comeback of a cult TV favorite. They are established, regulated, high-potential, high-growth investment marketplaces with worldwide public access.
But the prevailing attitude among American entrepreneurs, particularly among millennials, is tragically out of line with this new reality.
Three facts about Kickstarter, one of the first and most recognized players in the space:
- 1 in 4 prospective projects are rejected.
- 1 in 10 accepted projects receive zero dollars.
- The failure rate is 56 percent.
These numbers can only trend down. Entrepreneurs don’t need to be turned off, but they need a reality check.
A few things every young entrepreneur should know before considering a crowdfunding campaign.
- Crowdfunding is an alternative, not replacement for VC. It’s a viable way to bypass the ostensibly slavish and old school venture capital world, but focusing on one funding stream alone is increasingly common. Ignoring or downplaying traditional funding mechanisms is arrogant and foolish.
- Dilution of the marketplace. New platforms to crowdfund projects are announced on a daily basis, many of which lower the bar for acceptance. This floods the intertubes with competition, much of it inferior, making it harder to reach key audiences. No matter how good the idea, enough potential investors need to actually see the campaign to donate.
- Relevant narrative telling is an art and a science. Countless campaigns fail because narcissistic inventors drink the juice. They fail to research and grasp the nuances in the psychographics and demographics of their target audiences. Attention spans don’t exist anymore. If selling a game or app, they need to show how it works. Funny pitch videos lacking substance, ignoring the product or focusing on undeveloped mascots can deliver laughs. Not dollars.