As an early stage investor, I'm often asked by entrepreneurs how I feel about crowdfunding. The short answer is, "I love it!" Rewards-based platforms like Kickstarter and Indiegogo have helped many entrepreneurs bring their product visions to life. These campaigns have also piqued my interest enough personally to want to invest a company based in part on this initial traction. With that said, while there are a lot of benefits to crowdfunding, it also takes a lot of work.
1. Fulfill immediate funding needs
One of the biggest benefits of a crowdfunding campaign is the most obvious one: it can provide the funds you need to make your idea a reality. The beauty of crowdfunding is that you can outline your vision, and then you receive funds in advance to pay for production and delivery expenses. Instead of pre-paying for inventory, the campaign helps you collect funds from the start.
2. Assess consumer demand
In addition to receiving funds prior to production, crowdfunding campaigns also allow you to gauge just how many consumers are interested in your product. You may not know before the campaign if there's demand for 100 units or 1,000. The campaign will help you assess the demand for your product or service so that you're not spending money on producing too few or too many items.
3. Gain consumer insight
Over the course of the campaign, potential customers leave comments and ask questions. This can be fantastic consumer insight for you as the entrepreneur. What colors are they requesting? What features do they want added? What are the main issues they have with your product? What else would they like you to produce in the future? This feedback can be crucial in helping you iterate future versions of the product as well as to create a pipeline of new products.
4. Catch the eye of the press or a strategic partner
You never know who might see your campaign. Some products are so interesting to consumers that they share them broadly with their networks. This may lead to media coverage and/or attention from a strategic partner. By sharing your vision widely, you may open yourself up to opportunities you haven't yet imagined.
5. Position yourself for a future fundraise
Your crowdfunding campaign may be the first step you intend to take in building your company. At some point, you may also have the goal of raising money to fund your business from professional investors like angels or venture capitalists. If so, a successful crowdfunding campaign may provide you with very useful information (e.g. demonstrated consumer demand, customer insights, etc.) to give them comfort and reduced uncertainty in backing you.
Know the time and effort involved before starting
With the above said, I also want to stress that crowdfunding takes a hell of a lot of work! Don't be wooed into a campaign thinking that if you just post your product that it will go viral and sales will go through the roof. While that may happen on a small number of occasions, most entrepreneurs I know contacted every single person they knew to ask for help spreading the word and to make a personal pledge in their campaign.
As mentioned earlier, I am a big fan of crowdfunding: I love seeing whether the campaign was successful, the level of consumer demand, and customer feedback. It's also a great way for me to learn more about the entrepreneur (e.g. how they respond to comments and whether they can manage a sales and marketing effort). Especially for consumer product companies where upfront production costs can be daunting, advanced funding from the campaign can bring a product to life that might not otherwise have happened. Just be sure to fully understand the work involved before you begin.
Good luck with your campaign!