Crowdfunding: The Risks and Rewards

crowdfundingriskandreward

Wouldn’t it be cool to own a cooler that was so big, you had to actually hitch it on to your vehicle to get it to your party destination?  And wouldn’t it be something if that super-sized cooler had a built-in blender, led lights inside of it and bungee cables on the sides for attaching “whatever”?  And wouldn’t it be nice if that state-of-the-art cooler also had a usb charger and Bluetooth speakers (waterproof, of course)?

There were a total of 62,642 people who thought the Coolest Cooler would be so cool, they raised a grand total of $13,285,226 in order to get one.  The interesting part was that when the multitude of people were flinging out their money, the product didn’t even exist yet.  That’s right.  And this project is by far not the only one of its type.  It falls under the category of crowdfunding and has become a quite popular way of getting a product on the market.

Crowdfunding is a term given to raising money or contributions to promote a product, project, service, investment or even an experiment.  Or, it can be funds raised for a cause such as to fight a disease or hunger.  Generally it is done over the internet and involves a large number of participants.

There are different kinds of crowdfunding, each done for different reasons.  One type is reward-based which is when those who invest in the project get something out of the deal like those who contribute to a free software endeavor will be able to use the software so that is their motivation.  Others might pitch in for scientific research that involves something that affects their own life or that of a loved one such as a disease.

Then there is equity-based crowdfunding.  Equity-based crowdfunding is when a group of small investors rally money together to promote something they will be given an interest in.  It is a collective effort for a cause or product that would likely never come to be if not for the group coming together in one accord.

Crowdfunding can be credit-based as well.  That happens when a prospective borrower basically applies for a loan by laying their requirements on the line and then being matched up with investors who are receptive to the given terms.  This is done to secure a loan through a source or sources that are not associated with a bank.

Sometimes a crowdfunding project is done in order to bring about a product that a good number of people would like to see materialize, like the Coolest Cooler.  Because those enthusiasts realized the only way to see this product into existence was to take part in the funding of it, they did so and in return, they got the product once it did come to be.

The marketing of crowdfunding is not as easy as you may think.  Not just everyone wants to give up money or anything else of value, even their skills or time, to a product or cause they read about on the web.  It takes persuasion and trust building in order to create a following.  This is often times done through a well-known person who has a trustworthy reputation such as a movie or music star.  Crowdfunding efforts that have a front and center spokesperson tend to fare better than most.

Crowdfunding is the new wave way of getting things done.  It’s the rallying together of people who believe in a product or a cause enough to personally get involved in it.  Like everything done online, there are risks but successful crowdfunding is when the risks are overweighed by the desire to contribute in order to see something happen overweighs the odds.