The Crowdfunding Myth; Is it really worth it?
Outside of working with many startups post-crowdfunding, I have also run two successful crowdfunding campaigns in the last few years; one on Indiegogo and the other on Kickstarter, the two largest crowdfunding platforms. The products were incredibly different; a jewelry item (~$28) and a high tech product (~$5,000). Now, having run both campaigns, I do not believe crowdfunding is the way to start a consumer products business from the ground up. The reason is simple… hidden costs. Moreover, finding a credible resource (to have actually successfully gone through the process) for a breakdown of the costs needed upfront / guidance to make a crowdfunding campaign successful can be very challenging.
The first campaign I worked on was for my own product and I was “strongly” encouraged by an investor to go through the process to test the marketing message. To be completely honest, I did everything wrong for this campaign and we just barely met our goal in 30 days. The second campaign was nearly 40 days long and was more of a dare by the Founder of the startup (that I am not a part of) to see if we could pull off the challenge of selling a high priced item with an unknown technology / company and a long product delivery time. Although each campaign I worked on raised thousands of dollars with the second surpassing 6-figures I still would not recommend the exercise for firms to kickoff their products. The exception may be if the company was starting with $100K in existing funds, their product was in the $100-$200 price range and they were mid development with a manufacturer already. But who starts a crowdfunding campaign for the first time already with that amount of capital and certainty? What happens is that most of these platforms have turned into pre-order campaigns where the company starting line may be a little different than the average person looking to test the market viability of their idea.
To be clear, billions of dollars have definitely been raised from this process, but take a look at the top funded campaigns post-campaign (after successfully funded). Evaluate who actually delivered their product to market, how long it took to get their product to backers and how many companies are still in business. Remember the now Kickstarter banned Laser Razor (2015) raised over 4 million dollars and did not make it to market. The Tiko 3D printer (2017) raised nearly 3 million and did not deliver on its promises. The Zano small drone (2014) raised over 3 million and left most backers with nothing before liquidating assets. The list goes on and on.
A deeper dive into the post-campaign success / commercialization would not be surprising to find the failure rates still similar to the failure rate for startups worldwide (~90%) in many categories. So, where do the costs go and is the failure due to more than funding?
Well, here are some cost details to consider / plan for before embarking on this endeavor: