July 16, 2014

Crowdfunding Loosens The Rules

crowd fundingIn case you missed it, just after the July 4th weekend, the internet was ablaze with news that someone had raised close to $50,000 to make potato salad.  Not open a potato salad restaurant, not start a potato salad company, but just to make potato salad.  You weren’t even garunteed to get any with your donation.  Even though the donation amount eventually dropped (still to tens of thousands of dollars), anyone who has tried or thought of running a crowdfunding campaign no doubt was left thinking ‘huh?’The way this infamous potato salad project came about was due to some changing of rules on the biggest crowdfunding platforms as of late.  The two biggest changes, which we’ll discuss here, may impact if you decide to launch a crowdfunding project and, if so, how you go about it.

1. Indiegogo is no longer all or nothing.  Crowdfunding site Indiegogo has done away with the all or nothing pricing strategy that is the backbone of most crowdfunding platforms.  This means that if you set your project goal at $2000 but only get $20 in donations, you get to keep all $20.  Well, you actually don’t get to keep all $20.  Those who choose the flexible funding plan, as it’s known, compared to the fixed funding plan (where you set a goal and must meet it in order to receive any money) must pay an additional 9% above other fees (which at this point on Indiegogo is between 7-9% to begin with).  All of this is taken out of your, in this case, $20.

There are some obvious benefits with this flexible funding strategy in that you know, beyond a shadow of a doubt, that any money you raise can be used towards your project or business.  However, it’s possible that the flexible funding plan may actually dis-incentivize donors who are on the fence about helping you because they see you’re going to get money regardless.  In this case, if you’re using the crowdfunding process as a way to vet public interest in your project or business concept, you may not get an accurate result you can rely on.

2. Kickstarter is opening the project floodgates.   For a long time, Kickstarter had some pretty specific rules about what was and what wasn’t considered a project on their site.  They’ve done away with the review process they had in place that rejected an approximate 22% of submitted proposals, and now offer two options for those who want to submit a crowdfunding project.  While you can still offer your project up for review by the Kickstarter staff, you can also skip that step completely and go straight to publishing your project directly onto their site without so much as anyone other than you looking at it.

What does this mean for Kickstarter?  Well, first of all it may make it tougher for businesses to break through the clutter now that they’re competing against anyone and their brother (as an example, see the aforementioned potato salad project).  Also, by not going through the submission process you may get your project up and running quicker, but you might miss out on opportunities to make your project stronger and stand a better chance based on feedback from Kickstarter itself.  It’s also not known whether Kickstarter will focus on promoting those projects that they’ve had a had in reviewing or whether they’ll promote any that start to gain traction regardless of submission process.

As a reminder, there are many pros and many cons to crowdfunding projects – much of which we’ve talked about on this site before (do a search for crowdfunding or crowdsourcing and you’ll find a number of articles about this topic) – and these are now two more things to consider if you’re weighing whether or not crowdfunding is for you and your business.

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