Problems with Crowdfunding: 8 Hazards to Watch Out For
Coming up with a superb business idea is easy; looking for investors to turn your dreams into reality is challenging. The lack of capital is often why some innovative startups don’t get to see the light of the day. Fortunately, there are several mediums available that can help entrepreneurs attract potential investors and gather funds. One of the methods that are popular lately is crowdfunding.
Crowdfunding involves raising funds by asking for a small amount of money from a large number of donors, usually via the internet. It’s an effective way for businesses and charities to acquire capital, but like all things, it’s got a set of drawbacks as well.
In this post, we’ll take you through some hazards that should be taken as warnings before you partake in any crowdfunding activities.
Building a relationship based on honesty becomes difficult, especially on crowdfunding websites, because it takes place virtually. There is a risk of encountering fraudsters or scams while scouting for suitable investors for your business. There’s also the matter of gaining the trust of donors and benefactors, so they’re convinced to support your ideas. If you fail to represent yourself as a credible and genuine organization with realistic goals, prospects may never trust you with their money.
Finding a Legitimate Platform
The sharp increase in crowdfunding over the past few years has stimulated a rise in the number of sites providing crowdfunding services. Hence, making it nearly impossible for entrepreneurs to find the right crowdfunding site. Not to mention that browsing through hundreds of webpages can be incredibly tiring and time-consuming. Factors like the amount of daily traffic, type of visitors, and the overall fees of running a campaign on the site should be considered when selecting a platform for yourself.
Failure To Set Realistic Targets
When attempting to achieve your motives, a crucial step is to check whether they are within your reach or not. People keep an eye out for goals that can be executed from a proper strategy or plan. Otherwise, if they find the slightest hint that it is unfeasible, you won’t gain the trust of the right people. Another feature to look out for is the amount of time in which your business will attain the desired results. It’s imperative to forecast a timeframe when you expect the business to deliver results that will draw positive attention towards your campaign.
When you come to think of it, people are skeptical about putting their money in a project that they’ve never heard of before. Asking a stranger for money can end in two ways; either you convince them to invest or ignore your requests. Although you have the opportunity to clearly and eloquently state your purpose and scope of the organization, there’s no guarantee that any visitor will find your cause worth investing. If they aren’t interested in reading about your business for the first few minutes, even then, the chances are that 80% of them won’t care to research or learn more about it. Hence, leading you to spend more to stay longer on crowdfunding sites.
Compensation of Backers
When an entrepreneur meets backers on crowdfunding websites, they should understand that backers will need some form of fulfillment in return. This is the part where entrepreneurs must proceed with caution as any conflict or disagreement could cost you more than just an investor. Before you proceed with the campaign, discuss with the investor on how they want to be rewarded. They might ask for a share in your business or receiving exclusive offers and discounts on your products/services.
You have to prepare in advance to bend to their will while ensuring that your financial needs are being met. Entrepreneurs often create complications for funders and decline to deliver upon their agreements honorably. In crowdfunding, backers may lend, donate, exchange, or invest their money to finance your business. It’s essential to clarify which type of funding you are receiving from the get-go to avoid misunderstandings later on.
Watch Out For Copycats
Once you post your business idea on a crowdfunding platform, it is vulnerable to copycats that might simultaneously run a campaign alongside yours and gain more exposure than you. If you’re not equipped to protect your business venture, you can lose your funding opportunities by the hands of such fraudsters.
The only solution to this is taking up discussions about the project to private chat areas to avoid revealing significant info about the business to strangers. Another solution is to register your business and own its copyrights before going to crowdfunding platforms. You will then have legal grounds to report the copying competitor.
It’s best to meet with potential investors in person or hold meetings privately to get a better idea of how serious the potential funder is about investing. Do not share valuable data publicly. You can also issue non-disclosure treaties with potential investors and have your lawyer on speed-dial to prevent encountering such incidents.
Navigating An Agreement With Investors
Entrepreneurs need to be smart and strategic when crafting any agreements or terms and conditions with investors. Especially in terms of revenue, there should be a firm agreement on what percentage the donor should receive. However, you are meant to own at least 50% of the business to smoothly run operations and finance other areas of the establishment. You can’t afford to offer too much of the business to external parties, which will take away your importance and role as the business owner.
Once you’ve found suitable investors that are willing to fund your venture, negotiate an agreement that benefits both ends, but also gives your business the fuel it needs to get started. You can’t start off on a budget that does not fulfill your basic requirements, therefore be cautious of donor demands. If they don’t seem reasonable to your campaign, you are free to reject their proposal and look for other sources of capital.
Figure out your Global Shipping Strategy!
The part that many first-time crowdfunders seem to overlook is shipping. If you offer physical backer rewards to those that support your campaign, you will need a way to ship these products. Shipping is not free, and it is a time consuming endeavor which requires knowledge about different laws, duties and taxes in regions around the world.
For that very reason, many large Indiegogo and Kickstarter campaigns with over 2,000 backers trust Floship to handle their crowdfunding order fulfillment for them. We store, pick, pack and ship all individual backer rewards for you and ship them worldwide. We can do large batches all at once, something that requires years of optimization to the fulfillment procedures.
If you’re looking for a fulfillment solution, with other words, don’t want to navigate the jungle of global logistics yourself, reach out to Floship today. Consultations are free.Ship Crowdfunding Rewards
The Final Verdict
To summarize, crowdfunding isn’t an easy endeavor for entrepreneurs that take it lightly. Although it may seem like a magic solution, it certainly takes a lot of effort and hard work. You need to pinpoint and process all potential hazards before you dive into the pool of online fundraising. Everything from earning the trust of investors to fulfilling their demands and managing copyright issues goes hand-in-hand to pave the path to your success. Whether you are a digital marketing services provider looking to expand their reach or a startup looking to kick start their operations, crowdfunding platforms are a worthwhile funding platform.