Crowdfunding is an exciting concept for entrepreneurs – some see it as an opportunity to overcome the challenges to the traditional access to finance. However, crowdfunding is very challenging and requires a significant commitment of time and resources, especially in regions where crowdfunding is a developing phenomenon.
Advances in technology are changing the way entrepreneurial finance is accessed. New opportunities for raising seed capital are available for entrepreneurs – through social networks and online platforms. Investors are also provided investment platforms.
For example, Shake Your Power (United Kingdom/Kenya) – a project to build and distribute kinetic energy-generating musical shakers, which can be used for off-grid personal needs. The project was ran by British-Indian musician Sudha Kheterpal, best known as the percussionist in Faithless and The Return of the Spice Girls. Shake Your Power used Kickstarter4 to raise £53,001 (at the time about $81,000) from 943 backers, surpassing her £50,000 goal. The money has been used for research and development, design and engineering fees, materials, and educational kits to explain how the product works.
It is important to know that crowdfunding is much more difficult than most entrepreneurs anticipate and is not for everyone – opportunity costs abound.
Here are lessons from Shake Your Power project:
– Kheterpal spent an average of 20 hours a day on the month-long campaign, which required extensive outreach. As soon as someone would donate, she or someone on the team would thank them directly.
– During the course of the campaign, she responded to a multitude of questions in real time, gave over 50 media interviews, and produced three update films. When asked if she knew beforehand how much time the campaign would take, Kheterpal said, “I had no idea what I was getting into.”
– Kheterpal was not the only one. A survey of other entrepreneurs showed that they underestimated the time it would take to effectively run a crowdfunding campaign. One entrepreneur, who wished to remain anonymous, said, “The time commitment is greater than one can expect, and it comes on unexpectedly. If we had more time I would have done much better. Just to prepare I would have wanted three to four months.”
– This was a common refrain among entrepreneurs who said that crowdfunding detracted from the amount of time they spent engaging with customers on the ground and from the overall health of their businesses. One anonymous entrepreneur said, “You eventually feel like you lose out on normal business operations, management and engagement with the company. Sales go down and you generally lose income as you put more time into the crowdfunding process.”
A typical crowdfunding campaign can take months to prepare. Hours are spent conducting online and offline communications and considerable money is spent on shooting a crowdfunding video. Previous experience from crowdfunding campaigns has shown that the greatest cost of running a crowdfunding campaign was the staff time required to prepare, execute, and follow-up on a campaign. The campaign is a major time commitment and can detract from ongoing business operations.
“Crowdfunding in Emerging Markets: Lessons from East African Startups.” Washington, DC: The World Bank Group
Categories: Entrepreneurship and Small Business