Crowdfunding your graduate startup: pros and cons

You’ve been thinking about your next career step, and you’re pretty sure you’ve come up with a great idea for a business, product or innovation that could be a big hit with the right tools in place to deliver it. Great! So how do you go about making it a reality?
Well, once the initial sketching out of the idea is done, and you’ve developed a reasonably watertight plan for the subsequent development stages, it’s extremely likely that money will be the next major barrier you’ll run into. Without the requisite backing to finance bringing your great new business idea to market, it could be destined to remain little more than a pipe dream.
That’s why more and more people are taking advantage of crowdfunding platforms – the range and accessibility of which have grown exponentially in recent years – to provide that all-important initial startup capital.
However, while there are many reasons why it can be a fantastic way of securing early funds to help get your scheme off the ground, there are also a number of potential issues and concerns with crowdfunding models. It would be wise to consider all the points below before deciding whether it’s the right route for you and your plan:
It can be a cheaper way to get going. Many crowdfunding platforms essentially offer potential access to startup money without the typical loan-type burdens of scheduled repayments or interest, which you’d almost always be stuck with if you went a more traditional route via the bank.
It allows for smaller, uncredited investments and pledges. Other, more ‘formal’ creditor arrangements typically require a lot of legal groundwork that can block uncredited investors from being able to help you out.
It (usually) leaves your project in your hands. Some equity-type crowdfunding models allow investors to pledge backing in return for a degree of business control or shareholder power, but the more popular reward-based models generally mean you’ll retain full control of the business and any intellectual property associated with it after launch.
Backers represent tangible interest. If it’s likely that you’ll need to seek further support for launching your business or idea – for example, if crowdfunding is just a small part of a larger financial plan – then a successful public campaign represents a solid declaration of interest and support that can be very helpful in persuading other lenders.
It gives you options outside your immediate location. Seeking more traditional funding sources can often mean trawling local banks and creditors in your area, which is time consuming (and inherently limiting if you don’t live in a big city).
It allows you to tell a fuller story. A key part of putting together a good crowdfunding campaign is fully articulating why your idea is important and valuable. In doing so, you’ll get to develop a narrative, character and profile for your product or business, rather than simply having it appear on the high street or online and hoping your target market ‘gets it’.
It gives you a pre-launch support base. Appealing to relevant communities or key demographics in advance of your launch means you’re pre-engaged with right sorts of people before hitting the market.
Backers with wider influence can help spread your message. Trying to do everything through just your own channels is tough, but creditors or supporters who are interested enough to invest in your idea will likely also be interested enough to help you spread the word.
It gives you easy access to feedback. People who back your idea will usually be keen to share their views on how the early planning and development stages are shaping up, which can be incredibly helpful in gaining a wider perspective and making sure you deliver something customers want.
It can give you a foundation for future plans. Success in one crowdfunding campaign will sometimes mean you’ve also got a pre-built platform for publicising and funding your next idea, should you choose to develop one – your previous backers are right there.
You’ll need to offer rewards, and deliver them. Many crowdfunding models rely on you pledging tiered reward schemes for backers, to give them an incentive to donate. This demands careful thought and structuring to encourage people into higher pledge brackets through increasingly attractive benefits packages, and of course you’ll need to ensure you’re able to fulfil all promises later.
It’s unsuitable for complex projects. The idea or business model you’re pitching will need to be fairly simple and non-technical in order to get a good number of nonprofessional creditors on board; anything too complex or technical can often seem overly risky or confusing, and put off more casual backers.
It takes considerable time and effort. Planning and creating a compelling pledge drive includes myriad responsibilities such as developing those all-important multimedia elements, monitoring and responding to donations, supporting and developing the initiative with a well-executed social media campaign, and attending to constant queries and feedback from potential investors. All of this can quickly take on the weight of a part-time job – and, given that most crowdfunding campaigns are best suited to smaller funding targets, it can all feel a bit disproportionate to the amount you’re seeking from it.
There’s little scope for making any profit at the crowdfunding stage. This is particularly true with campaigns that are ‘all or nothing’ (meaning if you don’t secure your initial target amount, you get nothing from anyone – a very common model). Pressure to reach this baseline target often means setting the initial bar as low as you can, so it’s likely that you’ll only be covering very basic launch needs. This also requires any plans for rapid growth in phase two to be very carefully laid.
Your idea is made public before it’s ready to launch. In launching a crowdfunding campaign for a great idea, you’re always running the risk that someone who already has the capital you lack might see it and get in there first. However, bear in mind that copying is likely to happen if it’s successful anyway – just because you were first to market, that won’t necessarily stop someone with a higher profile launching their own version anyway. It’s part and parcel of the business world, unfortunately.
Failure doesn’t look great when it happens very publicly, and crowdfunding campaigns are inherently pretty public affairs. Even though it doesn’t indicate your idea was no good-by any means, it can be a big drain on momentum or moral, especially for team-based campaigns. (This con alone shouldn’t stop you from giving it a go, though, or trying again in future – many success stories failed to make their targets first time out.)
Adapting your idea can be difficult once people have started pledging support for it. Having to clearly define your precise plan in such a public way means that if you subsequently find you need to change elements of it, you risk losing that initial support or being tied in to all your original claims.
Negative reactions are immediately more visible. Not everyone is going to like every aspect of how your project develops or launches, and a successful crowdfunding campaign gives your backers a very public forum for broadcasting criticism during and after delivery. That’s fair, on many levels – but it’s something you’ll want to be mindful of as you go along.