Posted: 6:29 p.m. Tuesday, May 7, 2013
By Jana Kasperkevic
Considering a crowdfunding site to raise money? You might get one of these things instead.
You know crowdfunding, that new type of fundraising in which you can ask a large community of people to donate small sums of money to launch your new project or business idea? Turns out, it's not only about the money.
"Think of crowdfunding as an ecosystem," suggested Jeremy Andrews, founder and CEO of Smart Money Entrepreneurs, a crowdfunding site.
At a panel for aspiring entrepreneurs today at Baruch College, Andrews told an audience of 30 students, the crowdfunding ecosystem can help you meet the right people, and test out market interest in your idea.
Andrews was joined on the panel by two other crowdfunding site founders--Alejandro Cremades, CEO of Rock the Post, and Sang Lee, CEO of Return on Change--who, of course, also recommend you crowdfund (and not just for the money).
1. Crowdfunding democratizes the financing process.
Venture capitalists are not the only ones who know a good idea when they see it. Why should they be the only ones to judge the fate of your idea, anyway? With crowdfunding, consumers can validate your idea.
"Sometimes [traditional] investors, with all due respect, they act like dinosaurs and they don't even know what you are doing and probably they don't even really care," said Cremades.
"Now, the actual users are telling the public what companies they want to exist," he said.
2. It eliminates some of the emotional trauma of closing your first round of financing.
Trying to raise money on a crowdfunding site is no sure bet, nor is it free of its own hassles and complications.
But it may give you more time to focus on building your product or service, than a formal VC roadshow would.
"Crowdfunding helps [entrepreneurs] avoid the distractions of having to do the roadshow of closing the first round of financing, which normally takes on average eight months," said Cremades. "Being able to do so from home or the office in 90 days, it really helps to concentrate on what is important, which is building the team, executing well on the vision, and to continue to move on."
3. You get feedback that will help you improve your idea.
Start-up founders who crowdfund are often able to pivot their products using input they get from the market.
Cremades recommends you intentionally launch a project that's incomplete.
"All that time that you spend building that perfect product is the time that you are not going to have that product in the market and that you are not going to have customer feedback," he said.
If you launch before you've totally polished your idea, you might find potential investors do not give you money, "but they will tell you why--and that's what makes a difference," he said.