Nearly everyday there is a flood of articles about companies raising money through traditional fund raising efforts such as Venture Capitalists and Angel investors. But for the majority of startups who only have an idea and a business plan, these avenues are likely not an option. However, in the past few years, more and more options have become available to entrepreneurs who need to raise money to start their business, with one of the more popular options being crowdfunding.
Crowdfunding sites have popped up all over the web and have grown exponentially over the past five years. They have specific sites for donations, reward-based campaigns, and more recently equity financing, which help entrepreneurs raise money for art projects, consumer goods, software, and more. With an estimated $5.1 Billion raised on crowdfunding sites in 2013, the industry is thriving and many companies have become household names from their campaigns.
For example, the wearable technology company Pebble raised $10.2 Million for their customizable smartwatch that connects to iPhones and Android devices in 2012. Since then, they have come out with a full-scale production watch and have companies such as ESPN, The Weather Channel, and Pandora creating useful apps that integrate with the app. Another example is OcculusVR, who raised nearly $2.5 Million for their virtual reality headset for video games, and later was acquired by Facebook for $2 Billion.
While the few that succeed paint a pretty picture for the industry, there are plenty of concerns around crowdfunding. One of the concerns is the integrity of the company aiming to raise money. Unfortunately, it is very hard for a site like Kickstarter to thoroughly investigate every company that posts a campaign on their site. Even though Kickstarter, and other crowdfunding sites like Indiegogo, have to approve a campaign before it goes live, there is no guarantee that the company is actually producing a legitimate product, or that they will ever get to the point where they send out the rewards to people who pledged money. Recently, a campaign for a product called Anonabox was pulled from Kickstarter due to accusations that the campaign misrepresented the product and that the company was not actually producing the product, but rather selling a product that already existed.
Another concern is that companies will not execute on their promises. Several campaigns have been successfully funded but never actually shipped products to their customers. Others have been several months late in delivering their products, or delivered products that did not do everything that the campaign claimed it would do. Unfortunately, without a crystal ball, it is nearly impossible to determine if the company has the right resources to complete their project as planned.
As someone who has posted a Kickstarter campaign, I fully understand the pros and cons of running a crowdfunding campaign and believe that it is a great tool to ?kickstart? a business. It is a great place for people who want to prove an idea or concept, or to gain visibility in the marketplace. For example, several investors contacted us after seeing our campaign, and eventually, one invested in our company and helped us make our vision into a reality. Our project, initially called Crono, was for an email application for iPad. Since receiving funding, we have designed, developed, and released our product, now called MailDeck, for iPad and iPhone to the App Store and we have received critical acclaim. Recently, we were featured as the #1 Best New Productivity App on the App Store and have been featured in several other publications (148Apps.com, CBS Money Watch, and more). So while you might not succeed, you never know who is out there viewing your campaign.
All in all, I believe that crowdfunding is a great tool for entrepreneurs and it is here to stay. With new regulations around equity financing, I believe the industry will continue to grow, helping thousands of companies get to market, regardless of the horror stories of successfully funded campaigns that don?t deliver. However, as an entrepreneur, the million-dollar question remains: To crowdfund, or not to crowdfund?