Crowdfunding represents nothing less than a paradigm shift in technology development. This alternative to traditional fundraising allows an entrepreneur to pitch an idea directly to the public, test the market’s response, and independently gather seed money. Thanks to the power of social networking, innovations that may have otherwise been rejected by CEOs, or big-name venture capitalists, can now raise thousands (or even millions) of dollars. Never before has the public had such a voice in deciding what products will be developed, and never before have consumers played such a major role in the birth of invention. But while crowdfunding success stories abound, there have also been plenty of tales of heartache and headaches. This two-part article discusses some of the important concerns that we at WHGC believe should be addressed before any inventor attempts to crowdfund.
Kickstarter is an excellent example of a crowdfunding platform. It is the largest of the 450 or so crowdfunding websites, having helped raise over $925 million for over 54,000 projects. This 70-person company, located in Brooklyn, N.Y., was named as one of the best inventions of 2010 by Time Magazine. Virtually any idea that has a clear end (i.e. a project that can be definitively completed) and fits into one of Kickstarter’s 13 categories (such as technology, art, or film) can be posted on their website. And there are no upfront costs! A fee is only applied if the project successfully reaches its funding target by the deadline chosen by the project creator, at which time Kickstarter will apply a 5 percent fee and Amazon will charge another 3-5 percent for payment processing. However, if the funding goal is not met, then the funds are not released and no fees are applied since Kickstarter is what is referred to as an “All-or-Nothing” site. Indiegogo, on the other hand, uses a “Keep-It-All” model that allows creators the option of keeping whatever amount is raised even if the funding goal is not met.
Such success stories might lead one to believe that there is everything to gain and nothing to lose by crowdfunding, especially since posting doesn’t cost a dime unless a project is first successfully funded. But, beware! While crowdfunding may not require any up-front costs, it is certainly not risk free! Here are a few examples of successfully funded projects that now have huge obstacles to overcome: