September 26th, 2018
One failed crackstarter campaign does not demonstrate general failure of crowdfunding
Seeding Factory | Heri Rakotomalala Posted on June 19, 2013
It’s wise and relevant to point out the limits of crowdfunding. Raising funds to get the video of a politician smoking cocaine was most probably the worst crowdfunding campaign in the past months. Generally, the crowd would do due diligence and make sure there are no false claims, and also checking if the entrepreneur behind the project has done any substantial work. In this case however, the campaign was bound for success. Backed by large gossip website Gawker, with millions of readers, the campaign buzzed and made headlines.
Crackstarter campaigns like Rob Ford’s will happen and succeed again. As crowdfunding becomes more and more popular, a blogger or a highly visible figure will leverage their social reach to start crazy campaigns. Campaigns with products failing to ship will also be plenty.
Is this a good reason to claim that crowdfunding is a “general failure”? It’s an all-too hasty conclusion.
Let’s consider the case of VC or angel funding. There are no numbers on entrepreneurs pitching Venture Capitalist vs those who actually secure VC funding, but it’s much below crowdfunding’s 44% success rate. Even if you go pitch a VC with a solid business plan, with a great team and solid traction, your success rate won’t be 44%. It’s most likely they would ask you to come back in 3 weeks or more with more. Fast forward 6 months later, chances are you won’t get it, even after multiple meetings. Maybe it’s because it didn’t click between the main partner and the startup’s CEO. Or maybe the VC’s wife didn’t like the logo and colors of the product (oh yeah, it happens). Or simply, the terms negotiations failed. Same goes if you are talking to angel investors or bankers. I trust the crowd’s due diligence and wisdom more.
What about failures then? Did TechVibes run a feature on how VC funding is failing after Color.com got $41million and yet failed to deliver? What about all the startups folding in Vancouver, Toronto, Montreal, California? There are countless startups who are joining incubators / accelerators and who fail to launch publicly or go out of beta. There are well-known VC-funded startups that make headlines on the Globe or Techcrunch, to finally send out silently a newsletter on the service closing, pointing out alternatives. Where is the editorial showing that there’s a general failure in startup funding?
I am happy that crowdfunding is now a viable alternative source of funding for entrepreneurs. For early-stage teams who are risking ventures in un-proven markets, and who can’t demonstrate traction, crowdfunding is now a very serious option, along with friends & family. Venture Capitalists and Angel investors should consider how to work with crowdfunding as well. It’s obvious that a project crowd-backed by 1,000 fans or more has higher chances of market success than an entrepreneur who pitches well, but who can’t demonstrate that there’s actually someone ready to give their credit card number. Raising $50k or so on kickstarter or another platform proves that you have the social reach, intelligence, PR power, and have the potential to seize more minds.
Without crowdfunding, we wouldn’t have the Statue of Liberty. Montreal-based filmmaker Ariel Nasr wouldn’t be able to make his Academy Award nominated movie “Buzkashi Boys” (meet Ariel Nasr in Montreal here). The Tesla museum, a serious and laudable project, wouldn’t be possible. Notman House, the core of Montreal’s startup community, wouldn’t be possible and go to the next level.
Now for the sake of crowdfunding, it would be advisable for Indiegogo to select projects and raise the bar. However, that’s how they differentiate themselves from Kickstarter. If they want to allow more risky and wild projects, that’s a policy I can respect. After all, there are more than 700 crowdfunding platforms and it’s important to offer diversity.
100% chance of success doesn’t exist with early stage projects. Go to amazon.com or a brick&mortar store if you want 100% value-back on your $20 bill. For those who dream, for those who still believe in progress and building a better future, for those who are builders, or help build great projects, there’s crowdfunding.
NCFA Note: The Crowdfunding industry is very much alive and well and continuing to transform the dynamics of the funding landscape industry-by-industry, project-by-project. People should be allowed to donate their money to causes and projects of their choice. Having said that, it can be argued that portals should be motivated to disallow certain projects that are deemed unfit for the communities they support or are in complete bad taste. It is up to the portal to differentiate themselves from a business perspective from other competing portals. People who donate or lend funds to Crowdfunding projects are advised to conduct their own due diligence and understand the risks involved before committing funds and participating in a campaign that they are keen to support.