It may seem like everyone is a proponent of crowdfunding now, but sometimes, it’s actually not the best option for your business. Turns out asking a large group of strangers for funding isn’t all it’s cracked up to be—depending on your business, of course.
We asked a panel of nine entrepreneurs the following question: What’s one good reason NOT to crowdfund your next product/project?
This is what they had to say:
1. Crowdfunding Eliminates Your Networking
Good investment is 20 percent money and 80 percent networking, expertise and experience. With crowdfunding, it is really unlikely that you will get the same level of engagement from the investors that you would from other avenues. Therefore, the expertise and network brought to bear on your project will be less than ideal.
- Brennan White, Watchtower
2. Crowdfunding Wears Your Company Out
Crowdfunding is hard; it’s a major marketing campaign that ends with jumping straight into producing your product. When you add in that any company that uses crowdfunding almost certainly has to juggle existing customers and continue marketing well after the campaign, you can be facing a crushing workload.
- Thursday Bram, Hyper Modern Consulting
3. Logistics Must Be Handled First
I quickly learned that there is an awful lot to line up (from a logistics standpoint) in the short time that your campaign exists. If it’s a physical product, there is shipping, fulfillment, manufacturing, customer service channels, e-commerce development, sales, marketing and PR. If you don’t have a firm handle on all of these, you’re not ready to be at 200 percent of your goal.
- Adam Callinan, BottleKeeper
4. Crowdfunding Comes With a Ticking Clock
Delivering your product or service comes with a ticking time clock. This happens especially when you are on a crowdfunding site with consumer products or hardware. Developing your business with a ticking time clock and Kickstarter backers can be much more stressful and less useful than having a group of investors who will help you deliver a solid product to market.
- Brett Farmiloe, Internet Marketing Agency
5. Someone Can Steal Your Idea
If you haven’t made your product yet, crowdfunding can expose your unique product or concept to competitors (or potential competitors) and make it susceptible to IP theft. A well-funded or fast-moving competitor could potentially put your product or idea to market before your crowdfunding period has ended.
- Andrew Saladino, Just Bath Vanities
6. Crowdfunding Means Another Boss
Crowdfunding comes with a lot of fulfillment requirements and people you need to answer to. The alternative is having very few investors (or possibly only one) who know how to invest and whom you can close with one transaction. In the end, one transaction and one relationship is easier to manage than many.
- Andy Karuza, Brandbuddee
7. Diligence Requirements Aren’t Always Mandatory
With crowdfunding, due diligence requirements could go out the window. Amateur investors contributing their $10 to a startup are unlikely to require such diligence. This could result in unprepared companies without solid business plans—not the kind of company that could ever get institutional funding on a larger scale.
- David Ehrenberg, Early Growth Financial Services
8. Crowdfunding Comes With Some Deal-Breakers
The JOBS Act is meant to legalize crowdfunding, but it also has a scary provision entrepreneurs should run away from. Under the original Act, if you raise money through crowdfunding, directors and senior management could be personally sued. It pierces the corporate veil—the entire benefit of forming a company—which limits liability. Keep an eye on the SEC’s interpretations.
- Elias Bizannes, SV Foundry
9. You Lose Your Opportunity Window
Launching your minimum viable product (MVP) shouldn’t require crowdfunding. It takes weeks or months of planning and implementation to launch a successful crowdfunding campaign. You risk losing your opportunity window while focusing on raising funds. It’s no different than spending time putting together a slide deck and campaigning for investors. Avoid fundraising for as long as possible.
- Jared Brown, Hubstaff