The Cost of Crowdfunding Success Highlighted in the FT

The Financial Times published an article talking about the “Meteoric Rise of Crowdfunding for Start-Ups” (Registration Required).  The missive covers some of the shocking success some projects have experienced – and how overwhelming the success can be for small companies which are not prepared the for onslaught of attention.

To quote the experience of Revolights, an idea to improve bike lights which was crowdfunded on Kickstarter,

“We realised the gravity of what we had just done, which was take 900 orders of a unit that had yet to be fully designed. We had yet to make any manufacturing partnerships and we didn’t really have the money to do the legal things we needed to do,” says Mr Frankovich. While Revolights looked like an overnight success on the outside, the founders had to scramble to establish their business on every level to begin filling orders.”

 

The Financial Times brings further to light that companies crowdfunding on sites such as Kickstarter and Indiegogo must keep communication ongoing.  The need for transparency is paramount.

With Kickstarter already over $275 million pledged for 2012, the future of crowdfunding is only beginning.

The article ends with a quote from William Warner, founder of Avid;

“What’s going wrong [with the donation model] is that there is not investment going into the company. The cool thing about [equity] crowdfunding is that this is actual investment. This is capital. You are putting up money not for a product but for a stake in a company.”

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