What You Need to Know About Contributing to Crowdfunding Sites
Although crowdfunding sites like Kickstarter and Indiegogo have become the go-to sites for new company seeking to raise funds and jumpstart their product lines, they also come with a considerable amount of risk. Crowdfunders have faced criticism over the use of funds raised, as well as over delays in delivering the promised product. With this in mind, we spoke with a couple of experienced crowdfunders and crowdfunding experts to learn what potential backers should know before hitting that ‘pledge’ button.
Understand the risk.
“It’s a risk,” Mike Solow, CEO of Idea Harvest, LLC says bluntly. “It’s always going to be a risk, so the advice is to keep the expense within your comfort zone so you don’t overdo your budget and put yourself into a bad position. Even more importantly, go into it with realistic expectations.”
Know where your money is going.
“You also need to understand where this round of fundraising is going to go and what it will accomplish,” Solow continues. “If you see a highly technical product that is probably extremely expensive to manufacture, and they only have a goal of $20K, there is a very low chance that the crowdfunding effort is going to pay for their manufacturing expenses entirely. They will need to go out and raise more money in order to turn on the machines, and you need to understand that. They didn’t disappear with your money, but they need to get more in order to make it work.”
Understand they’re new to all of this.
“It’s the first time to the party for many of these people/companies, and you should manage your expectations as a backer,” Solow explains. “They will need to learn the common lessons that new business owners and inventors encounter as they relate to manufacturing and product development. Cut them some slack as they grow.”
Realize there will (probably) be delays.
Crowdfunding a product isn’t the same as ordering it online, Solow explains. “The fact is, it is going to be a long time until you see that order fulfilled…period. These businesses are in pre-launch mode in most cases, so you can be sure they have no inventory in stock and it could be six months or longer until that changes. As a backer, you should expect 12 months as the minimum fulfillment timeline. If they are able to beat that, good…you win. If they don’t…just make sure they’re updating their backers frequently with posts on their progress.”
Nonprofits have also broken into the crowdfunding space, but that doesn’t mean you should take them at face value. Lia Reich, Check-in for Good Marketing Director, explains, “If you come across a campaign in support of a nonprofit, before donating make sure that the site or app you are donating on sends your money directly to a verified 501(c)(3) account or cuts the check themselves. Check-in for Good has partnered with GuideStar to make sure that every charity in our system has been checked out and your money is going to the right place.” GuideStar, alone, is a good resource for researching nonprofits.