Crowdfunding - should we be worried about its future?

Crowdfunding is a hot new area of interest for entrepreneurs and those seeking funding for artistic projects and more.

This article is provided by the Institute of Innovation and Entrepreneurship.

While there have been some notable crowd-funded successes – and even an Academy Award-winning movie – I worry about several issues:

A dismal record in investment

Much of the venture capital industry has a poor record at picking companies to invest in, not to mention often delivering negative returns to their investors. It’s unlikely that Aunt Millie will do any better, and she may not be very happy when she soon discovers that the crowd-funded investments she’s made have all turned to dust. A backlash in likely.

Large effort for a meagre return

The emerging early data on crowdfunding suggests that the average amounts raised are in the neighbourhood of £1,000. Doing a successful crowdfunding campaign involves lots of work: perhaps creating a compelling video, building a prototype, and even bringing your own network, as well. Is it worth all that effort for such meagre returns? Might that effort be better spent on finding some real customers and convincing them to buy?

Lack of support

Financing a new business, difficult as that is, is perhaps surprisingly the easy part of getting a new business underway. Actually running the business – having the right products, targeting the right customers and so on – and making it viable, is much more difficult. Crowdfunding does not offer any help in that regard.

In short, crowdfunding is an interesting new phenomenon and just how much it will mean to entrepreneurs remains to be seen.