The $50,000 Potato Salad | Evolution Of Crowdfunding

Crowdfunding: Pros, Cons, and Funny Stories

Crowdfunding has quickly become a popular way to raise money for a number of causes and businesses.

February 11, 2021

In this article:

• How did crowdfunding become a viable method of funding?
• What are some of the pros of crowdfunding?
• What are the cons of crowdfunding?
• Which crowdfunding platform should you choose?
• What are some of the success stories?
• What are some of the failures?
• Are there any funny stories?

Evolution of crowdfunding

Believe it or not, crowdfunding has been around since the 1700’s. Although in a much different form. The rich used to fund the poor with the help of the Irish Loan Fund.

But the crowdfunding we know and love began in 1997. British rock band Marillon was having trouble funding a reunion tour that fans were calling for. When they informed their fans that the tour would cause them to lose money rather than make it, their fans pitched in through donations.

This idea prompted ArtistShare to create the first ever crowdfunding platform in 2001.

But crowdfunding is clearly not the only way to fund a business. Venture capital funding and IPOs are the most popular traditional ways to raise capital.

But this doesn’t always work, as startups may not be able to secure funding from either of these sources early on. That’s where crowdfunding steps in.

Pros

There are definitely some benefits to using crowdfunding platforms.

Firstly, companies that successfully use crowdfunding manage to get the funding they need but get to keep control of the equity of their business.

Crowdfunding also allows companies to create willing brand ambassadors almost out of thin air. These are people who are passionate about the cause or product, and they will basically market your cause for free.

By marketing using a crowdfunding campaign, companies can gain more exposure than traditional funding situations.

Lastly, some crowdfunding platforms allow their businesses to build in special perks and discounts to their products and services. This can increase sales and ensure that sales are steady, rather than sporadic like other investment routes.

Cons

This isn’t to say that crowdfunding is all sunshine and rainbows.

There are more variables and less guarantees for companies that use crowdfunding. There is no assurance that companies will reach their funding goals whatsoever.

Companies that choose the crowdfunding route must be very transparent and direct about their plans and financials. Companies in the early stages of startup might not be able to detail their plans so specifically.

In addition, there are usually larger costs associated with crowdfunding. This could include platform, accounting, legal and marketing expenses.

Options

There are a number of options for crowdfunding campaigns, and they each work best for different kinds of causes.

The two most well known are Kickstarter and Indiegogo. 

Kickstarter is an all-or-nothing platform, so if your campaign doesn’t meet its goal, the pledgers don’t have to pay, and you don’t get paid. There is a 5% fee for campaigns and a 3 to 5% transaction fee.

Indiegogo includes some options that are not all-or-nothing. There is a processing fee of 3% and a 30 cents USD per transaction fee.

Causes is a good option for nonprofits that are focused on social, political, and cultural issues. The platform is free of charge, and runs its business off of ad revenue.

SeedInvest is a good choice for startups. Before getting a listing on the platform, your startup must be approved by SeedInvest. But once on the site, you will gain exposure to venture capitalists and angel investors. If your campaign fails, there are no fees, and if successful, there’s a 7.5% placement fee and a 5% equity fee.

Patreon is a frequently used option for digital creators. It gives creators the opportunity to sell monthly subscriptions or on a per creation basis. The fees range from 5 to 12% depending on your plan, plus a 2.9% processing fee and 30 cents USD per payment.

GoFundMe is a popular option amongst individuals looking for funding, rather than startups. A campaign comes with 24/7 customer support. There’s a 0% platform fee for those seeking funding, but a 1.9% processing fee plus 30 cents USD per transaction.

Successes

With all of the options available, it may be hard to choose which one suits your needs best. Whichever route you choose, there are many examples of companies that have been able to succeed in immense ways.

For example, Pebble designed a sleek and intuitive smartwatch that reached $1 million USD in funding within 28 hours of posting to kickstarter. They eventually reached over $10 million USD in funding. Their success can be attributed to their likable online persona, and their direct approach to addressing consumers’ needs. Although they have been discontinued since.

In Missouri, Natalie Dubose started a GoFundMe to get her bakery rebuilt after rioters destroyed it. She reached her goal of $100,000 USD, largely relying on community values and the immense power of empathy.

Failures

That’s all fine and dandy, but there are way more failures than there are genuine success stories.

Giving you a product you didn’t know you needed comes Laura Stude, who created the Loop n’ Poop (formerly known as the Strap and Crap). This device allows you to loop your body around a tree and lean backwards into your poops making pooping outdoors easier than ever. She was never able to reach her funding goal.

Canadian Stephen Lauzon sought to create an advanced underground shelter system based on years of experience in ‘diversified industries’. Of his almost $5 million CAD funding goal, he managed to raise $1.

Funny ones

Zack Danger Brown (clearly a Bond villain) was looking to make a potato salad (to take over the world), with a goal of $10USD. When his funding totals reached over $50,000 USD, he ended up designing t-shirts and hats to appease his fans.

Marc Gauld of Scotland was sick of arguing with his flat-earther friend, so he started a GoFundMe campaign to send his friend to space, even though his friend would likely have a reason why earth looks round from space. Virgin Galactic’s civilian spaceflight brand is the only option for Gauld, so he’s seeking to raise almost $350,000 USD to make it happen. His campaign currently sits at under $200 USD.

I guess the moral of the story is, regardless of whether, you have serious or silly intentions, crowdfunding is an option, and there’s a good and bad way to make your dreams come true.  

-by Arlen Dancziger

History of crowdfunding

https://www.startups.com/library/expert-advice/history-of-crowdfunding

Pros and cons of crowdfunding

https://builtin.com/finance/venture-capital-vs-equity-crowdfunding-which-is-better-business

Crowdfunding successes

https://onlinemba.wsu.edu/blog/crowdfunding-success-stories-you-can-learn-from/

Crowdfunding failures

https://www.gobankingrates.com/money/business/biggest-crowdfunding-scams-failures/

Strap and crap

https://www.indiegogo.com/projects/strap-and-crap#/

Flat earther crowdfund

https://uk.gofundme.com/f/5mgaa-send-a-flat-earther-to-space

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Who Is Matt McKeever?

Matt McKeever is a CPA, CA and Real Estate Entrepreneur in London, Ontario. On his YouTube Channel with over 70,000 subscribers and 4,000,000 views Matt discusses a variety of real estate and personal finance strategies and tactics. Including: How to BRRRR Real Estate, The Importance of Investing for Cash Flow, How to Reach Financial Independence Retire Early, Safe Withdrawal Rates, Frugality and Reducing Personal Consumption & Embracing Minimalism. 

Matt began investing in real estate at age 25 by purchasing a student rental near Fanshawe College