How exactly do you convince investors to take risk on a great idea? It’s the question that plagues inventors, designers, creatives and entrepreneurs everywhere – the frustration of having limitless potential, and no capital to back it. But maybe we’ve been looking at this the wrong way – instead of begging up the ladder for acceleration, should we leave our future in the hands of our potential customers?
Traditionally, startups would look to VCs and government funding to supply the hefty amounts needed to get a prototype, a site or venture off the ground – often having to hop, skip and jump through all kinds of red tape, requirements and regulations that at best slows down their process and at worst dilutes the very idea that excited them in the first place. But with crowd-funding sites like Indiegogo, Seedrs and Kickstarter expanding into the UK, all of a sudden it seems the investment market is entirely free from constraint. So is this the future of our creative ventures?
The crowd-funding system has a lot going for it. First of all, it’s a process based on validation. Ideas that genuinely excite, inspire and seem to solve a problem that exists for many are the ones that get the funding they need – automatically answering the investor question of ‘is there are market for this?’ Proving the worth of your idea is built into the very process of raising the money to begin with, making it a) a system that builds you an audience and potential customer basis before your product is even launched and b) much more attractive to outside investors looking to find projects with real traction.
Secondly, by avoiding the messy issue of allocating shares (and therefore power) to people who have invested money, the team at the helm can concentrate on exactly what they want to build, rather than having to reach a compromise with greedy investors, or dilute their message or product with official sponsorship or influence. Instead, the in-built reward process is one of ‘perks’ – thank-yous, gifts, giveaways , mean that the creative team behind the venture hold the reins of what exactly they are willing to offer. No negotiation, no pushing back by investors insisting on getting more for their money , the people at the heart of the project set the parameters, and it’s up to investors to decide whether it’s worth their while or not.
It’s a brilliant, risk-free way of getting an idea tested – if you fail to make your target, you lose nothing, and your would-be investors have their money back to donate elsewhere. Danae Ringelmann, co-founder of crowdfunding site Indiegogo said
“It is the first time that finance has been fast, efficient and meritocratic, because it is not about ‘how do I get access to the decision makers in that bank?’ or ‘who do I know in that venture capital outfit?’ This is all about proving your worth to your customers and fans, getting them to validate your idea and fund it.
“Even ideas that aren’t deemed worthy enough to get funding are worth testing, because you will have saved yourself a whole bunch of time finding out it wasn’t a good idea and getting smarter faster.”
The thing is, it’s certainly not a system that will appeal to more secretive creators – anyone wishing to launch a product or service without first openly discussing their project in open, blazing sight will find crowd-sourcing an unsympathetic option. It’s certainly true that this method of fund-raising leaves ideas open to thievery and duplication – if someone sees your idea and does it better than you before you can, there’s very little you can do about it. The platforms charge a percentage for their fund-hosting services too, anywhere between 4-10% depending on which site you use, and, of course, if you don’t meet your target, you don’t get the cash.
There’s also the argument that those with heightened social media profiles or industry celebrity are much more likely to get enthusiastic backers pouring in than your kindly old mate Phil who runs his business out of his shed. But yes, although the powers of Twitter and Facebook can be skewed in favour of those with high profiles, that doesn’t render the core ideology behind crowd-funding redundant. If you see an idea you think should become a reality, and you feel passionately about it, you will back it. And then, to help make sure it really happens, you’ll tell others to back it too.
Sharing the project doesn’t become part of a “clever” marketing scheme on behalf of the company you’re engaging with – it is an active, honest decision on behalf of the backer to help a project they feel strongly about. It’s what marketing has been trying to do all this time – genuinely get people emotionally (as well as financially) invested in a product or service. Crowd-funding strips away the fluff and pomp of a business venture, leaving the power in the hands of their potential customers; those who would benefit from it.. And if nothing else, the popularity of this “reverse marketeering” is certainly something all companies – start-up or otherwise – should pause to consider.
By Natasha Hodgson