Why I believe crowdfunding could be great for your startup

I read an article on The Next Web today with the title: “Why crowdfunding isn’t funding anything at all“. The author, Yaniv Tross, reasons that crowdfunding is not that at all. He renames it as a group pre-ordering platform and puts it squarely in the marketing corner. And I disagree. Let me tell you why.

I strongly believe that crowdfunding could be great for your startup. You have to read that correctly. I do not believe that crowdfunding is the best way of getting investment into every single startup, but it could be great for yours. Or not. But you will have to read on to find out which is the case.

First off, crowdfunding is different from most other types of funding. Even though both versions include pitching your ideas, products or services, the actual transaction is very different. An investor is a professional. He will judge your startup on a completely different level than end users will ever do. And that, in my opinion is part of the great opportunity that crowdfunding is giving your startup. Lets face it, people that are into crowdfunding rarely do it because they love the team, or because they think you would be great at doing a pivot and building something completely different. Those are two arguments Yaniv Tross holds against crowdfunding. For me, those are solid advantages. It is a clear case of people voting with their wallets.

If you are connected to the startup world in any way, you will have heard about lean startups and minimum viable products. Crowdfunding might be one of the fastest and most effective way to see whether people are willing to spend money on your product or your services. You pitch it and you offer them to be able to take part in what you are achieving or are going to achieve. That, to me, is brilliant. It is not down to the whims of an individual investor, or a group of investors, but it is down to your end user to vote whether or not they think you are important enough to them to survive at all. In many ways, that is the ultimate test. Instant customer feedback, plus the marketing opportunities that go with it.

Depending on the platform you are using, crowdfunding might allow you to pivot sooner than you ever would have otherwise. At Kickstarter, you need to raise your full amount to be able to get it. At other platforms, like Indiegogo, you don’t have to. Even if you raise less than your goal, you can still continue and deliver on your promise. But the great thing is that you can now contact your backers to see what they liked about your product and where they found it lacking. It is market research that is paying you, instead of you paying an agency. With the added bonus that you have early adopters that can introduce their friends to it once it is at a level where they wanted it to be. Plus the added bonus of your early adopters feeling like the in-crowd. They know they have made a difference and that the product they are using is there because of them. That is empowering customers.

And lastly, crowdfunding is not about equity shares, legal structures and other troubles that most startup owners really don’t want to deal with. I know that you will have to at some point. But why rush it? The money you raise is related to the use of your product or your service. That is also where your passion is. And yes, raising more would mean that you have to include all kinds of extra perks. But those can be found in defining extensions to your services or having access to the team and its dreams. After all, if you are building a service or product that addresses your own needs, chances are that you have the same interests as your early adopters. So, use that.

As an added bonus, when you get crowdfunding in, you will have users. They will give you traffic and traction. And there is nothing like having a startup with traffic and traction when the time comes to really raise funds.

2 Comments on Why I believe crowdfunding could be great for your startup

  1. avatar
    Maarten, CEO CityShare
    January 29, 2014 at 11:38 (6 months ago)

    Fully agree on your well-written article Arne. We’ve just started an equity-based crowdfunding campaign (http://www.symbid.nl/ideas/4506-cityshare) with CityShare, which isn’t a lot of paperwork thanks to the concise rules in the Netherlands. We also think it’s a great way to test your startup and try to achieve two additional goals next to raising early-stage money and testing your mvp: validation of your valuation and welcoming heavy promotors. This certainly makes sense for any startup active in the social media!

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