By Kayleigh Alexandra, MicroStartups
Assessing the strengths and weaknesses of crowdfunding and explaining how to determine whether it’s the right choice for you.
The internet is responsible for countless business innovations that can make life easier, but to an entrepreneur navigating the tricky startup phase, crowdfunding warrants the closest attention. Deviating from classic investment structures gives you some fresh options and can give you a better chance at success if you plan carefully — but it isn’t right for everyone. Is it something you should be seriously considering? Let’s run through what you need to know.
How Crowdfunding Has Changed Business
Crowdfunding isn’t a gimmick or a flash-in-the-pan fad. It’s big business by now — and that business is expected to exceed $300 billion by 2025. Look at all the platforms on the market, and you’ll find something for every type of operation, even if it’s a non-profit (consider sites like GoFundMe or YouCaring).
This is worth noting because it isn’t something anyone need struggle to justify to colleagues or business partners, plus it’s raised the pressure on conventional angel investors (or investment groups). Imagine someone considering passing on a pitch and trying to calculate the cost of letting it go — today, they need to factor in both other investors and crowdfunding campaigns.
It’s also an exceptional way to build enough hype that you blow past your goal and can scale beyond your wildest dreams. An angel investor is unlikely to volunteer markedly more than you ask for, but not so with crowdfunding: For example, Smart Nora asked for $100,000 through Kickstarter to fund its anti-snoring product, raked in $800,000, and even used Shopify to get its store live early and bring in a further $200,000 in presales.
The main point here is that crowdfunding is a great addition to the business world in general, so even if you don’t use it, you’ll still have slightly improved chances of succeeding.
What Sets Top Software Vendors Apart
It isn’t commonly quality of ideation that separates the best software vendors from the worst — it plays a part, but one that pales in comparison with those played by quality of execution, quality of iteration, and quality of communication.
Take any type of software solution (such as team communication tool, project management suite, or website platform) and compare the top contenders on the market: More often than not, the listed functions will be very similar, with other elements determining their distinct receptions and perceived strengths.
Why Crowdfunding Is Great For Software
Here’s how this relates to crowdfunding: The qualities that set certain SaaS companies apart aren’t always easy to showcase to potential investors. Not only are they typically going to focus rigidly on the financial projections, but they’ll also need their proof up-front, so unless you can already point to a glowing record of helping customers achieve their goals, they’re unlikely to take it on faith that you’re going to deliver on your promises.
Now consider the crowdfunding prospects of such a business. When you’re pitching to numerous individual investors, the cost of someone giving you a chance is greatly reduced, so they’ll be more inclined to go with their gut (after all, they won’t have that much to lose).
Additionally, crowdfunding operations can feasibly be development-based, which is to say that you can secure support very early on and develop your software with your supporters following your progress — that way, you can showcase your qualities as a business (through providing in-depth updates and listening to feedback) before you’ve even launched the first stable release. Tools like BackerKit are perfect for this, allowing you to easily survey backer opinion and batch-process pledges when you’re ready to deliver.
When you’re under the thumb of a solitary investor (or a small group of hands-on investors), you’re subject to their whims. If they decide that you’re going in the wrong direction, they can start making demands, or even threaten to withdraw funding entirely. Crowdfunding, however, is more stable — you might see the occasional request for a refund, but for the most part people are willing to let their bets ride (so to speak) and wait to see what the result looks like.
When Is Traditional Funding Preferable?
So, with all those benefits established, why wouldn’t a budding software vendor choose to target crowdfunding as a matter of great urgency? Well, there are some circumstances in which it’s more advisable to pursue traditional funding — here are some examples:
Should You Use Crowdfunding For Your Software?
So, with all that said, is crowdfunding a viable route for your business? It really depends on what you’re aiming to develop, and how you prefer to work.
If you want to spread the responsibility and build your company in the public eye, then crowdfunding is worth pursuing. If you’d rather operate in the dark and take direction from expects alone, then aim for traditional angel investment first.
Overall, though, it’s fantastic for startups to have options, so crowdfunding is a welcome addition to the business world — and it absolutely deserves its place as a mainstream funding method.
About The Author
A writer and small business owner, Kayleigh Alexandra is an expert in all things content, freelance, marketing, and commercial strategy.
A team of writers and marketers, MicroStartups was founded to inspire the entrepreneurial and business community to give back. We believe in business growth through giving and supporting the local community.