Sure, on the surface crowdfunding sounds like a revolutionary idea that any young, aspiring entrepreneur should want to utilize to fund their new creative project, however, what isn’t being considered is how misleading this platform really can be and the risk that follows the slippery slope this new phenomenon takes intuitive thinkers down.
First and foremost, the new wonder of crowdfunding isn’t anything like the historical process of fundraising. Historically, creative thinkers needed to have an idea with a model thought up first, then this idea would be presented to “would be” investors with hopes of those individuals believing the pitch and feeling that it would be worthwhile to invest in such a product. With crowdfunding, the final product is already developed and the true process that any entrepreneur should have to experience with fundraising is bypassed.
Traditionally, the fundraising process revolved around an idea, not a finished product. With outlets such as crowdfunding and Kickstarter, that method is all but eliminated. In both cases, creators are coming at investors with fully completed products, there’s no process or room to work with investors to help create the best product possible. In return, inventors receive less feedback because the product has already been finished and their early models lack a completeness that could have been obtained with the traditional fundraising. With a more trial and error type approach, the product being presented could have a stronger foundation.
Breaching the Gap
A team-orientated atmosphere is essential to the success of a new product. With crowdfunding the process is very individualized and there is a clear gap between investors and the creators. On the one side you have the creators that have developed an idea, and on the other side are the investors who are only looking at what’s sitting in front of them and not thinking about the process that it took to get to that point. With traditional fundraising, the two parties would work much more closely and form a team type bond.
The types of investors that are attracted to crowdfunding projects are not the type of investors that any beginning, ambitious entrepreneur would want to be involved with anyway. These types of investors, because of the atmosphere that has been created with crowdfunding, are only concerned with final products, and not with the process that led to those final products. Young creators need to be partnered with investors who are looking out for their best interest, which must include the entire path of a new idea and not solely the completed creation.
Convincing somebody is a very special skill, an art really, that all entrepreneurs will need to develop if they have any hopes of trying to advance their creative ideas. Through the process of traditional fundraising, investors and creators met face to face and the relationship towards receiving funding for a project was much more personal and developed slowly over time. Although gifts and other rewards are put into motion to try and maintain the relationship between the backers and the creators, crowdfunding provides a very easy way for creators and investors to communicate and support one another without ever really coming into contact with the other at all. In a sense, it creates a fictional atmosphere that doesn’t provide either party with the knowledge necessary to commit to such a thing as providing funding for a particular idea.
Another aspect that has contributed to crowdfunding’s popularity nowadays is the presence of social media. Social media has provided creators with an easy way to market their products to an extremely diverse and broad demographic, without ever really learning what promoting or marketing skills really are. Until the JOBS Act of 2012, the thought of social media being considered as a reputable source of marketing wasn’t even in the question. Crowdfunding has created a very impersonal environment that has formed a substantial amount of risk for creators and investors while leaving a lot of room for error and failure.
New Risks Are Emerging
Risk of fraud and or mere incompetence has a much greater probability with crowdfunding due to the lack of intimacy that is created when investors and creators do not form a personal relationship with one another that involves actually meeting in the physical world. Investors have a much harder time making intelligent decisions for themselves when they are this removed from the process of the creators. However, many investors still take these risks and end up having endured a failure that they had not expected to experience from the start.
Again, the process of traditional fundraising is something that is completely lacking today with the world of crowdfunding. Consequently, countless ridiculous ideas have received funding that would have never received funding in the first place and that also cannot possibly return any sufficient amount of capital to investors. Sadly, investors will be out of luck and this cycle will cause the success rate of crowdfunding to fall, prompting more regulations and other implications to be proposed to try and put the platform back on its tracks.
Crowdfunding today has created a very risky environment that new entrepreneurs are getting all too used to. If this type of atmosphere continues and eventually develops into the model for how entrepreneurs should go about fundraising and marketing in the future, the new world that will be formed for businessmen and women around the world will be filled with risks and failures. Not to say that failure is all bad or that crowdfunding doesn’t work, or that it isn’t a reasonable mode of funding, because it has and it is, but it lacks crucial components of the traditional fundraising and marketing model that are essential for any new creator.
Time and time again technology has proved to be a double edged sword for a variety of different ideas and groups of people, allowing much of the interactions made today to become detached and faceless. Despite the fact that technology has connected people all around the world and truly created a joint global community, there comes a certain level of individualism that isn’t good for newly developing ideas.
It’s hard to say what the future holds for crowdfunding and the models of fundraising and marketing, however, entrepreneurs shouldn’t be completely convinced with the new platform of crowdfunding before doing their research and getting the facts straight. Without the facts and proper knowledge, creators could see themselves lost down a dark path.
References
- Forbes: The trouble with crowdfunding
- Stanford Graduate School of Business: Crowdfunding 101
- The Next Web: Why crowdfunding isn’t funding anything at all