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Published On: Thu, Sep 24th, 2015

The Crowdfunding Crowd is Smarter than Ever

Crowdfunding is the fastest-growing venture financing method in the history of fundraising. Technology has made it easier than ever to get your start up idea or charitable cause in front of seemingly countless investors eager to part with their hard-earned greenbacks. But technology has also accelerated competition between crowdfunding platforms. There are dozens of platforms available to launch your proposal, each with their own formula for calculating fees and charges for the privilege of using their service. Given the multiple options, the platform you choose gives the potential investor an important clue into what type of venture manager you are.

Investors have one very clear goal: to maximize their investment. This concept can take on many different meanings in the realm of crowdfunding. Whether the investor purchases equity in the project, supports the social mission of the philanthropic crowd funding effort, or wants to see that Grandma and Grandpa have the best Anniversary vacation ever, the investor wants as much of their investment goes towards the goal, rather than to the platform owner. Investors need to have the impression that they will be rewarded (either financially or spiritually) as a result of their investment. Savvy investors analyze very closely both your vision and all the costs of realizing it.

photo/ Public domain pictures via Pixabay

photo/ Public domain pictures via Pixabay

Crowdfunding has been, at its core, an incubator for innovative ideas. Given this history, it is surprising that there is almost no innovation in the way that platforms arrange their fee structures. The first few platforms decided that a 5% fee was reasonable, and nearly every subsequent platform followed suit. A pushback against this standard has been slow, but two sister sites have completely removed the 5% fee: Plumfund and Honeyfund. The impact of not having this 5% fee stripped from each contribution should not be overlooked. The crowd funding industry was a $5.1 billion industry worldwide in 2013, this 5% fee is worth $255 million.

Maintaining predictable positive cash-flow is one of the greatest challenges that new ventures face. It makes sense to avoid this 5% fee. Choosing a platform without this built-in tax sends a strong signal to potential investors that you are aware of the current fee structure environment that exists in crowdfunding. Not doing so sends a very bad set of signals to potential financial partners: either you are clueless when it comes to the industry or you simply do not care enough to research more economic alternatives. These are both potentially game-ending conclusions that potential investors could come to long before they open their wallets.

There is no excuse for not performing a thorough analysis of the pros and cons of each available crowdfunding platform before starting a fundraising crowd-funded proposal. Treat crowdfunding, no matter what type it is, like you would treat any other business. In other words, have a plan. You are much more likely to gain financial support if you have shown you have taken the endeavour seriously, both from the passion side of the equation and in terms of return-on-investment. Remember, every potential investor can very easily compare the many crowdfunding sites to see for themselves what the rate structures are. An open, easily accessible marketplace for crowdfunding gives the leverage to the investor, and can make you look foolish if you choose a more expensive platform without being able to quickly justify the additional cost. It is likely you will not have the opportunity, they investor may simply move on to a more appealing, cheaper option.

Guest Author: Angie Charda

On the DISPATCH: Headlines  Local  Opinion

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  1. The Crowdfunding Crowd is Smarter than Ever - News Aggregator says:

    […] Read more at The Global Dispatch Related News 25 Habits That Will Make You Smarter Want to expand your mind? A little bit of effort every day goes a long way.Read more from TIME.com.Read more on NewsOK.comRead more on Newsok READ MORE 7 Steps of a Successful Crowdfunding Campaign “Crowdfunding is not a walk in the park. Unless that park is covered with broken glass. And a lion ate your shoes at the entrance gate. And he is now … READ MORE Wishful shoppers try to crowd-fund Christmas gifts They're looking for Ol' St. Click. The naughty and the nice are flocking online to ask complete strangers to grant their Christmas wishes. “Now I am old enough to get my… … READ MORE DC Fig and Olive reopens, dozens sickened, salmonella implicated The Washington DC Health Department said after nearly one week, the Fig and Olive food establishment has reopened. The reopening comes after six days of closure because of salmonella illnesses … READ MORE At Trump rally, Republicans experience Obama-sized crowd, excitement DALLAS — Donald Trump's rally at the American Airlines Center Monday night boasted the crowd size, the intensity, the hero worship and level of excitement not seen since Democrats packed … READ MORE Who was Eric Striker talking to in the crowd after OU’s overtime win over Tennessee? Erik HorneOU pulled off a major comeback in Knoxville, rallying from a 17-0 hole to beat Tennessee 31-24 in overtime.How did the outspoken Eric Striker celebrate?Read more on NewsOK.comRead more … READ MORE Creating Your Startup Investment Portfolio Using Crowdfunding Investing in early-stage companies can be highly risky and equally rewarding. I recently began investing in startups as well and even shared the philosophy of how entrepreneur’s should pay it … READ MORE How You Can Stand Out from the Crowd Job-seekers and career professionals often search for a way to stand out from the crowd. Well, have you considered selling bamboo sheets on Amazon?That probably sounds crazy. I hope it … READ MORE 25 Habits That Will Make You Smarter 7 Steps of a Successful Crowdfunding Campaign Wishful shoppers try to crowd-fund Christmas gifts DC Fig and Olive reopens, dozens sickened, salmonella At Trump rally, Republicans experience Obama-sized crowd, excitement Who was Eric Striker talking to in the Creating Your Startup Investment Portfolio Using Crowdfunding How You Can Stand Out from the Crowd var hupso_services_c=new Array("twitter","facebook_like","facebook_send","google");var hupso_counters_lang = "en_GB";var hupso_image_folder_url = "";var hupso_url_c="";var hupso_title_c="The Crowdfunding Crowd is Smarter than Ever"; […]

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