This article discusses crowdfunding and some of its benefits, such as testing and validating entrepreneurs’ assumptions about their product and the opportunity to secure funds, and its drawbacks, such as the risk that the product could be copied.
This article discusses crowdfunding and some of its benefits, such as testing and validating entrepreneurs’ assumptions about their product and the opportunity to secure funds, and its drawbacks, such as the risk that the product could be copied.
I understand the concept of crowfunding and think websites such as kickstarter are a good idea in theory, but it seems to me that they do not allow a potential entrepreneur to “actively” sell his product. Sometimes, it is hard to judge how good a product is on a cursory glance or a cursory reading of the description. I’m also not sure if there is any incentive for individuals to “pledge” funds to startups without any financial return (other than gifts or other incentives entrepreneurs sometimes offer).
Crowdfunding has seemed like a “win win” situation for both entrepreneurs and for consumers, but I feel that the novelty is soon about to wear off. From an entrepreneur’s perspective, platforms like Kickstarter have allowed entrepreneurs a method to showcase their idea, test assumptions, and most importantly source funding. On the flip-side, consumers are able to get behind products and ideas that they would like to see come to fruition and feel a part of something bigger than themselves. The problem however, is that many consumers don’t really understand what they are getting into when they hit the “pledge” button. Many fail to realize that their pledge is by no uncertain terms considered an “investment.” In fact, when consumers pledge money, it is legally recognized as a gift. Consumers get absolutely zero equity, and there is no guarantee that the idea will come to fruition – or even that the money will be used in development of the product/idea. This point was made very clear by the very recent news that Facebook was acquiring the start-up company Occulus VR. Occulus made waves when it started a Kickstarter campaign a few years ago to further develop its virtual reality gaming headset into a consumer ready product. Within a very short time, Occulus raised over 2.4 million dollars via Kickstarter and was seemingly considered the “crown jewel” of successful Kickstarter campaigns. Not so much anymore, as it was just announced that Facebook would be acquiring Occulus for 2 billion dollars. There has been a ton of backlash, but what’s interesting is that the backlash not only stems from the fact that the earlier “investors” don’t get a dime for their early contribution, but also because Occulus was perceived to have”sold out.” While this may not sit well with the fans and backers of Occulus, it makes perfect sense for the company itself. The question now becomes, how many people are still willing to contribute to the success of others without getting anything in return? Ultimately, I see how the crowdfunding concept can work very well for charitable or humanitarian ideas, but this model simply does not seem like a sustainable mechanism for a profit-making entity, especially after today’s news.