Will crowdfunding be the future of small business funding or die a slow “Fad” death?

Michigan gets cold fast in November and as outdoor activities slow down, planning for next year comes into play. As I do my own planning for the remainder of this year and into the next, I can’t help being a little excited about the possibilities. This has got me thinking about where the crowdfunding arena is now, and what direction it’s going to go in the future.

future city image for the future of crowdfunding post

Image credit: http://coolvibe.com/2010/future-city-2/

So I reached out to a few experts (in various industries) to see if I could discover any patterns in the perceptions of crowdfunding world. I think that its important to go and get into other industries or “get outside the building” to continue to grow and innovate in ways that your might not necessarily see sitting inside or hanging with the same crowd. This is what some of the great innovators like Ford and Toyota manufacturing do with lean process development.

Why? Because it works.

Ok, let’s get to it.

Here is what 16 experts (in their own industries) think when I posed the question:

 

“Will crowdfunding be the future of small business funding or die a
slow “Fad” death?”

 

 1. Yaro Starak - Entrepreneurs-Journey.com

 

yaro starak of entreprenuers-journey.com talks about crowdfunding

“I think crowdfunding is here to stay, assuming there are always cool products to support that choose the crowdfunding option to raise funds.

I don’t consider it a replacement for other funding methods, but it’s a fantastic new option for big and small projects.

It’s not appropriate for all business types however, so I suspect traditional funding options like family and friends, bank loans, Angels investors and good old fashioned bootstrapping will continue to
be popular options too.

As long as their is value on offer for everyone involved – investors and the project founders – it will continue to be a viable option.” -Yaro

2. Walter Haas – Kickspy.com

Walter haas of Kickspy.com talks about crowd funding“It’s important to differentiate the concept of crowd funding (namely asking a group to support your idea with their hard earned money) from implementations of crowd funding like Kickstarter and IndieGoGo.

I think crowd funding as a concept is phenomenal because it enables more people to get the resources they need to bring their ideas to life. But the concept isn’t new, it’s been around for a while as the idea of “pre-selling” your product to a market so that you don’t waste valuable resources building something no one wants (see Tim Ferris’s “The 4 Hour Work Week” and Eric Ries’s “The Lean Startup” for a treatise on this). Crowd funding today is just a more formalized version of that. Moving forward I think crowd funding is definitely here to stay and we’ll see a lot more evolution and formalization of the overall concept.

For implementations of crowd funding like Kickstarter I think we’ll see a lot of flux in the coming years. Kickstarter has taken the lead for now but the space is young and the more crowd funding gathers pace the more opportunities there’ll be for companies to service that need. I see a lot of opportunities here especially for crowd funding platforms serving a specific market or vertical. For entrepreneurs in that space I think it’ll be a scary and exhilarating ride over the next few years.”- Walter

3. Ian Schoen - Tropicalmba.com

Ian Schoen of tropicalmba.com speaks out about the future of crowd-funding“Crowd-funding used as a means of pre-selling or validating and idea is a great way to start a business. Platforms like Kickstarter are cool because they do all the hard work of providing a wide-eyed audience with their wallet practically falling out of their pants.  I think before the trend goes anywhere we’ll see other platforms open up into smaller market segments.

For example manufacturing auto parts.  There are a lot of manufactures and solopreneurs in that space that have traditionally organized ‘group buys’. Someone will start a thread proposing a new product at X price if Y amount of people sign up – they’ll go to production if the demand is met.  Now that white label crowd-funding platforms are available I think we’ll start to see other crowd funding niche marketplaces start to appear.” -Ian

 

 

4. Georgia Wright-Simmons – Launcht.com

Georgia Wright-Simmons talks about the future of the crowdfunding world“At Launcht we believe in democratizing access to capital, and we see crowdfunding as one of the best vehicles available to do this at the moment.

As technology continues to reshape the way businesses develop and grow, we hope that crowdfunding will be a positive force for change, giving everyone more power, agency, and connection.

We are very optimistic that it will be a part of the future of small business development.” –  Georgia

5. Will Mitchell –  Startupbros.com

Will Mitchell talks about crowd-funding“Crowdfunding is here to stay. There will always be innovative ideas that are too risky for traditional investors; just like there will always be early adopters trying to be a part those ideas. Products that are validated via crowdfunding often become fundable after the fact, so I wouldn’t be surprised to start seeing crowdfunding as the step before angels and VCs.

As time goes on, I think crowdfunding will be seen as just another marketing medium for new companies and new products.” -Will

6. Sarah McKinney – Ampyourimpact.com 

Sarah McKinney on crowdfunding“The future of small business funding, though I think it will become increasingly hard to raise funds due to contributor fatigue.

Equity crowdfunding is coming at a good time, as this model will increase appeal and engagement among an entirely new audience of people who are willing to contribute at higher levels.”  - Sarah

7. Andreas Zoltan -  Skyrocket Media

Andreas Zoltan of skyrocket media talks about crowdfunding“Crowdfunding is hyped right now. However, it’s definitely here to stay. But like every hype, I expect it’s significance in the media and mainstream culture to gradually vanish. With every new crowdfunding platform that pops up, the whole concept becomes less of an innovative way to create cool stuff and more of a way to fund businesses.

I’d compare it to eBay in it’s early years. Everyone was doing it back then, but once businesses discovered it as an opportunity to sell their stuff, the experience and the originality of the concept vanished.” - Andreas

8. Salvador Briggman  - Crowdcrux.com

Salvador Briggman from crowdcrux“I think that rewards based funding online is here to stay and that donation based funding has already been around for quite a while. Some businesses are a good fit for rewards based funding. Other’s aren’t. With regards to small business growth, I really like the Kiva model for “crowdfunded lending” in developing countries as an alternative to traditional charitable giving or philanthropy.

It remains to be seen whether or not equity crowdfunding will be a good thing for both investors and entrepreneurs. When you say small business, it makes me think of a local company or lifestyle business, which isn’t a highly scalable internet company.

 

While investing in a local company or a lifestyle business that has predictable cashflow takes away a certain element of risk, in my experience, it’s also much more difficult to get a reasonable return out of the investment. Either the company needs to be sold, someone needs to buy you out, or there needs to be some kind of secondary market for funds (taking IPO off the table with small business).The investment is very illiquid, which makes me uneasy. It’s a good opportunity for the small business owner, but I’m not sure whether or not it’s a good opportunity for small (<5k) investors. Over time, I think that crowdfunding will become another financial instrument that has its time and place. It may decrease in popularity over time, but I don’t think it’s a fad because as a financial instrument it serves a practical purpose for both parties (investors and entrepreneurs).” - Sal

9. Ezra Firestone –  Smartmarketer.com

Ezra Firestone“One medium rarely replaces another. Crowdfunding will stick around, but it will not replace anything.

It will coexist with other sources of funding.”- Ezra

10. Joseph W Magnotti –  Empireflippers.com

Joseph W Magnotti“Well considering I have never used crowdsourced funding, I’m not sure I am the best source.However, I think it’s future is very bright, just look at the recent success of entrepreneurs on the DC getting funding through Kickstarter.”  - Joe

11. Terry Lin – Buildmyonlinestore.com

terry lin of buildmyonlinestore.com“Crowdfunding will be here to stay because it’s one of the best ways to validate a business idea. Getting the first few customers is the biggest challenge of any startup.

Having a platform to find them and receive money before anything is mass produced allows the founders to be brutally honest with the realities of their idea.” - Terry

12.  Justin Cooke –  Empireflippers.com

justin cooke“I definitely think crowdfunding is here to stay, although I think its present form will change considerably in the coming years as the market develops.  We’re already hearing that Kickstarter has funded more art projects than the National Endowment for the Arts and it’s great to see so many creators able to develop their ideas.

One thing that concerns me is the fact that a surprisingly high percentage of campaigns on Kickstarter don’t actually come to fruition.  (The same story or even worse with other crowdfunding campaigns)  It’s also a little concerning that well-funded individuals and corporations are using these platforms as a way to retain equity and squeeze investments.

I’m sure this will be worked out over time and these growing pains are likely a small price to pay to have so many wonderful ideas being created and implemented.” - Justin

13. Tim Conley - FoolishAdventure.com

Tim Conley“Neither. ”

 

“I think it will continue to exist, but I think it will stay a small percentage of business startup funding.” -  Tim

14. Spencer Haws – Nichepursuits.com

Spencer haws of nichepusuits.com“I think its too early to say how big of an impact it will have in the future. I think most likely that is some verticles it will play a significant role – maybe this will be video games and moves…I don’t know.

In other areas of traditional small business, perhaps it will never take hold or just stay more of a “fad”. Its an exciting area for sure, and I would love to see it continue to grow. Time will tell!” - Spencer

15. Piers Duruz – Crowdfundingdojo.com/

Piers Duruz“Crowdfunding will always be one tool of many which people can choose to turn to depending on their needs. Venture capital will continue to be right fro some startups. Crowdfunding will grow to occupy the niche where it makes sense, which is largely projects whose key differentiating idea can be easily understood by it’s end user, who have a certain amount of progress towards something visible already made and, in many cases, where some kind of audience has already been built up. Yes, there are many projects, mainly tech gadgets, who have no audience and still do well, but for any of these there are dozens more great ideas with under 5 pledges because they just got no traction in the first 48 hours from a preestablished audience.

What’s likely to happen though, is that people will come to understand the crucial importance of preparing a campaign and it’s marketing (beyond the campaign page). Right now there’s a common “if you build it and it’s great they will come” mentality and a high failure rate as crowdfunding is new and people usually only see the big successes and not the failures. That’s changing. Campaigns are getting smarter and doing more work to get ready. This will raise the success rate and grow crowdfunding even further, but will likely remove a lot of the kind of projects that are getting listed today with a kind of blind faith that filling out a project page and making a video is all you need to make millions of dollars.

In short, crowdfunding will continue to grow. It will become a broader term as equity crowdfunding comes in, but will become a more professional field with increasingly sophisticated campaigns rubbing shoulder to shoulder with other funding options.”  - Piers

16. Todd Heslin  -  Beingremarkable.me

Todd“Crowdfunding sometimes sounds a bit surreal. The media hype up the big multi-million dollar raises just like they hype up the big investments and acquisitions in the venture capital space. The reality is that under all the hype, crowdfunding is nothing more than putting on the ‘dog and pony show’ for true believers in your tribe instead of investors or bankers.

You could always do this in the past but the online tools have made it so much easier to focus on the connection with your tribe instead of the mechanics of putting it all together. Every startup should consider how they can connect with their tribe to help them fund incredible products that make them feel something special. Crowdfunding is here to stay.” - Todd

What do you see in the future?

Personally, I get really excited about the future of crowdfunding and the possibilities moving forward into 2014. With niche platforms emerging daily, I think the space will continue to fragment and subsets of service providers and Saas apps will form a new ecosystems. This can (and should) continue to provide more and more opportunities for young entrepreneurs and new businesses more exposure and access to the funding and tools they need to get going.

To wrap things up I want to highlight 3 important points out of these insights;

  1. Crowdfunding is not a replacement for other methods, it will coexist.
  2. It’s still ever-evolving, and new opportunities are forming everyday.
  3. First-movers advantage is over, now is the time for the true value-adds.

 

I hope that you find some of your own insights from this, I know I did.

 

To your crowdfunding success!

Karl Steinmeyer

 

Thanks to everyone that participated and responded with your advice, I truly appreciate your time. :)

 

  • Dan Franks

    Guess my response didn’t make the cut :-) I’ll instead give you my thoughts here:

    Crowdfunding is anything but a “fad”, and it is absolutely here to stay. In fact, it has been around for much longer than people think. Groups have been microlending for hundreds of years, but until recently it has not been something “mainstream” that anyone can join in on. The fact that in some form or fashion crowdfunding has been around for so long, I think it is pretty clear that people who call it a fad are simply misinformed.

    I think the better question would be “What is the future of crowdfunding?” and I think that is where the real uncertainty lies. Right now the trend is to get lots of people to contribute small amounts of money for experimental or under the radar types of products and services. I have “funded” projects that helped a buddy record a studio record, one that went to creating first prototypes of new travel bags, and even one for watches made out of stones! All cool but all small money for small-ish projects.

    In the future, I see two ways things could break from this. I see the possibility of large, household name type companies using crowdfunding to release their experimental products as a way to test markets (and fund their tests) before mass rollouts. I also see more small companies moving the direction of not just accepting funds for certain products, but also accepting larger chunks of funds to invest into the companies themselves to gain equitable shares, which will lead to much greater risk and reward scenarios for the crowdfunders themselves!

    Dan Franks of EntrepreneurShowdown.com

    • http://kickstartyourjourney.com/ Karl Steinmeyer

      Thanks Dan :) Excellent question, and I would have to agree that “what is the future of crowdfunding” is a better question. For this thought experiment I had to narrow the lens a some with a such a broad range of backgrounds of entrepreneurs.

      There have been several “late” entries so I will be updating a new article with those (and yours) in a new one shortly. :)