The Fringe Benefits of Crowdfunding

In the past few years, crowdfunding sites like Kickstarter and Indiegogo have become dependable sources of capital for all types of ventures. 2013 alone saw startups and artists collect more than $5.1 billion in crowdfunded cash. But businesses can receive more benefits from a successful crowdfunding campaign than just money. For instance, a startup selling a Bluetooth-enabled padlock raked in $652,000 in just one month on Kickstarter. Besides the investment windfall, contributors also sent the company offers of help with design, manufacturing and distribution.

“We always thought of the marketing and the money, but we didn’t realize how it would open the door to other opportunities,” said one of the company’s founders. Many crowdfunding efforts that reach their goals tend to go viral on social media first, which can bring the attention of thousands to even the smallest effort. Along with those who are willing to give money, some crowdfunded companies also receive assistance from people who are experts on strategy, messaging and marketing. In fact, a recent survey showed that 70 percent of entrepreneurs value the fringe benefits of crowdfunding more than the actual collection of cash.

In another Kickstarter campaign, student entrepreneur Daniel Haarburger attracted more than $32,000 in eight days for a band that attaches smartphones to bicycles. His collection of 3,250 supporters eventually became his unofficial focus group, generating ideas for future designs and improving on the current iteration. He also made contact with dozens of people with expertise in fields like packaging and sales. Haarburger even established a valuable working relationship with a former Apple executive who provided valuable tips about product testing. Still, not all offers from crowdfunding supporters are created equal. One startup that makes GPS-enabled watches received a message from a trucker driver offering free advertising on the side of his semi. The co-founders declined but were appreciative of his interest.

 

Questions:

  1. Why is crowdfunding particularly important to small businesses?
  1. What additional benefit has crowdfunding provided to emerging companies?

 

Source: Jennifer Alsever, “Crowdfunding’s Secret Benefit,” Fortune, March 8, 2015. Photo by: Sebastiaan ter Burg.

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