What Are the Downsides of Crowdfunding?

Crowdfunding your project through sites like Kickstarter or Indiegogo sounds like a great idea, and it is for many businesses. Unfortunately, not everyone enjoys the same experience once all the chips are counted and the shipping date becomes increasingly closer.

A variety of setbacks and unexpected issues pop up in the world of business and deliverables. Your innovative and revolutionary smartphone stand could be rendered obsolete by a new version of the target device which doesn’t fit quite as well in your stand as the one that existed when you designed it.

It’s very easy to miscalculate the costs and efforts involved with delivering on rewards, especially when your project takes off beyond your initial expectations. It might be perfectly reasonable to ship t-shirts to 100 people, but when your project receives well over 1,000 t-shirt orders, things get a little more complicated.

Add to that the fees and taxes involved with crowdfunding and you have a potential for loss if the rewards aren’t calculated absolutely perfectly. If you don’t promise enough, you may not get the funding. If you promise too much, the rewards may actually put you at a loss.

This isn’t to say that this type of funding isn’t key to the success of many projects that wouldn’t have the means to come to life without it. It does mean, however, that it isn’t as easy as asking for money and receiving it. You have to think of every pledge as an order and your job is to fulfill these orders as timely and cheaply as possible without sacrificing quality or failing to deliver on promises made during the campaign.

Being the founder of a Kickstarter or Indiegogo project is a lot like being a politician.

You might gain enough support from the community to get what you came for, but your continued success depends on keeping the promises you made that encouraged people to throw their support behind you in the first place. Your reputation could be severely hurt by a poorly executed project, and that could have a lasting impact on your next project and/or company.

Private investors make bets on companies knowing that the majority of them won’t result in a positive return on their investment. This happens, and failure is part of entrepreneurship. It’s actually one of the things on which private investors judge the founders before investing. If you haven’t had a failure yet, you’re bound to have one very soon.

Crowds invest because they either want to support the idea or they want whatever it is you’re selling. If you don’t give them a return on their investment as promised, they tend to take it personally and will hold that founder accountable.

The folks behind the Banner Saga project on Kickstarter quickly learned just how much work sending t-shirts and posters out to 4,000 backers really was. One of the challenges they faced was figuring out how to get the post office to ship 4,000 tubes, because a volume like that from someone without a volume agreement with USPS is almost certainly going to be rejected.

These are just a few things to consider before starting your project. Once you have these bases covered, you’ll be well on your way to a smooth and successful funding campaign.

Have you ever been burned by a crowdfunded project that failed to deliver on promises made? Have you ever been part of a project and had to deal with the price of success? Leave a comment below and let us know.

Woman Credit Card And Money by Petr Kratochvil

Article Written by

Ryan Matthew Pierson has worked as a broadcaster, writer, and producer for media outlets ranging from local radio stations to internationally syndicated programs. His experience includes every aspect of media production. He has over a decade of experience in terrestrial radio, Internet multimedia, and commercial video production.

  • mibtp

    I donated to a film called FURever, a year and a half ago. Promises have not been kept. Still have not received DVD of film. Filmmakers hasn’t even completed project. Obviously not a priority to her.