Crowdfunding can be a financial lifeline for a startup but it can also be a futile, time wasting attempt to raise money. Don’t try it until you understand how it works.
Crowdfunding websites match those who have ideas they want to turn into reality with donors.
The crowdfunding website takes a commission from the funds raised, typically 5% but the commission can be 10% or more on some sites.
The top Irish crowdfunding platforms are: FundIt; SeedUps; iCrowdFund; iDonate.ie; and MoneyCrowd.
Pros and cons
For startups and certain types of small businesses, crowdfunding is seen as a low-risk way of raising funds without having to part with equity.
Some startups have found that crowdfunding is a stepping stone to other capital. Increasingly, angel investors and venture capitalists back promoters who have been successful in crowdfunding campaigns.
But crowdfunding has its drawbacks. Failure rates are high – the majority of crowdfunding projects fail to reach the fundraising goals.
Startups also find that crowdfunding is a time-burner. Success is often down to the amount of time spent preparing the campaign and then promoting and managing it. Entrepreneurs need to put a lot of information about a product or service into the public domain. This carries risks – your competitors will know what you’re doing and you may be forced to defend yourself from online critics.
Below are five questions you should ask yourself before you ‘kick start’ your project.
1. Is your business suited to crowdfunding?
Crowdfunding suits certain types of businesses – usually startups or early stage companies that are looking for relatively small amounts of money. It has a higher success rate within certain sectors like the arts, digital media, music, and certain types of consumer goods businesses. You should find out if the crowdfunding platform you are considering has a track record of success with similar businesses to yours.
2. Do you have right skills for crowdfunding?
Crowdfunding suits particular types
