Commercial Crowdfunding May Not Be a Dazzling Option for Solid Funding
Crowdfunding has been hailed over and again in recent years as a path for entrepreneurs that promised easier access, faster results, and more control over the company than traditional venture capital. Unfortunately, the results are a little more lopsided than that. Public crowd fundraising platforms for products that are sold directly to consumers has proven to be useful for established companies and creatives looking to ensure an audience before putting the work into a new project, but for those looking to launch a company, the results have been different.
There are certainly success stories that show using crowd-based platforms is working for some businesses some of the time. Without those stories, there wouldn’t be anyone pushing them as solutions. Unfortunately, just because something works some of the time doesn’t mean it’s a viable option for most users. When the results are mixed, as they are with crowdfunding, more analysis is needed to understand when and how it is best deployed.
It’s worth noting that while crowd fundraising for new companies might not be a spectacular way for most of them to launch, a very similar method called peer-to-peer investing tends to show more consistent results for more companies. It still brings together multiple lenders and investors, and it also allows you to retain more control over your business than traditional venture capital. It takes fewer people to fund most projects using a peer-to-peer method, though, and that makes it more workable for a wider range of companies.
Neither of these innovations has proven to be a replacement for VC funding, however. If your business matches the success profile of other companies that have successfully used those platforms, it could be a good idea to consider them. If you don’t closely match the characteristics of companies that perform well on them, you might consider other options like financing or traditional capital sponsorship. Those solutions have successfully launched companies for decades because they are efficient, well-supported by lending institutions and financial regulations, and there are many options for bringing them to bear, including publicly supported options like the SBA.
If you are considering crowdfunding, it is worth comparing its risk and cost profiles to other methods of raising funds, because the key is to use the most efficient method for your specific business model. Even using the same options as other companies in your industry doesn’t guarantee success if your way of doing business is substantially different from theirs, so consider your options carefully.