Crowdfunding Businesses: Benefits and Risks

Professional keynote speaker Scott Steinberg is a leading expert on leveraging new technology trends to enhance business strategy and family life. A noted industry consultant and bestselling author, his new book The Crowdfunding Bible is 100% free to download at, or in eBook form on Apple, Nook and Sony Reader devices.

Crowdfunding seems like a dream to many video game developers – just post up a pitch for an unfinished gaming project, and watch the pledges and donations roll in. But as veteran crowd funders will tell you, the actual process can be something of a nightmare, and success is far from certain. Certainly, crowdfunding can be a powerful too for launching and marketing any new business or startup. But before diving in, make sure you understand the benefits and risks associated with the practice:

The benefits of crowdsourcing should be obvious:

  • You get money to help complete your project.
  • You keep control of your equity as well as your creative independence.
  • You get to gauge people’s enthusiasm and interest in your project.
  • You create empathy with fans and greater emotional investment in your product, brand and associated ventures.
  • You can kick-start your marketing campaign and turn fans into brand evangelists.
  • Backers feel as though they hold a personal stake in your project, making them automatically part of your social media and marketing teams.
  • It’s a handy way to raise awareness for projects – even before they technically exist.
  • You may create some buzz around your project that will help you when it launches.
  • It’s exciting, and it’s also a great way to expand your social connections.
  • Whether successful or not, it provides an inexpensive learning experience – what you take away from the process will be subjective, but there’s no question that such knowledge will apply to future projects and campaigns.

In a well-planned and -executed crowdfunding project, there aren’t a lot of downsides, but there are always some risks you should be aware of too, however:

  • You may fail to reach your goal (and be on the hook for any costs that your campaign has accrued). In almost all cases, however, you won’t owe anything to the crowdfunding site or to backers in terms of rewards, as they will not be charged for their pledges.
  • Your image may be tarnished by a project’s failure to perform.
  • Unsuccessful ventures may be seen as less viable when presented to potential future investors. You are unlikely to meet with success selling a project to prospective investors that has previously failed when presented through a crowdfunding campaign. The value of such ventures will be assumed to be greatly reduced.
  • Supporting crowdfunding projects may consume more time, money and effort than you initially anticipated, or are prepared to invest.
  • A fine line must be walked when promoting projects and asking for pledges – if you’re not careful, you may annoy or distance potential allies.
  • Your costs may be higher than anticipated, meaning that your goals may have been set too low or you didn’t forecast expenses related to rewards, operations and overhead carefully.
  • In a worst-case scenario, your project may get funded, but fail for other reasons. Understand that the legal issues surrounding failure to complete a project that has been crowdfunded, or one that arrives late or fails to meet expectations, are yet to be defined as well. Your liability in such situation may be hard to quantify, to say nothing of the personal sense of responsibility and obligation that you will feel to backers. Regardless of whatever legal complications may or may not occur, you will have to live with the knowledge that you let your community and backers down.
  • If you’re the sensitive type, realize that crowdfunding is the ultimate “putting yourself out there” experience. It’s like being picked for the team in grade school. If you are chosen, you’re happy and validated. If you aren’t, or you’re picked last, you feel rejected. Crowdfunding can trigger strong emotions, so be prepared.
  • As with any form of solicitation, some friends, family and members of the general public may resent being asked for funds. However, while this is an inherent risk you will take when crowdfunding, some negative response may be mitigated by your enthusiasm and positivity, and the perceived value and validity of your project.

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