Too Much Focus on Crowdfunding Can Be a Mistake

focus on crowdfunding

Technology has had a huge impact on the way we interact with one another. For businesses, the Internet has increased their reach in terms of customers, partners and even investors. In fact, it has even brought about a whole new investing concept — crowdfunding.

But while crowdfunding presents an interesting opportunity for some startups, it might be negatively impacting others. For those entrepreneurs looking for larger investments from more traditional sources, the same factors that help crowdfunding campaigns succeed don’t necessarily apply. And that can lead to some misguided assumptions for entrepreneurs seeking funding.

Joanna Schwartz, CEO and co-founder of investment platform EarlyShares included some of those common misconceptions in a post for Entrepreneur. She said that today’s entrepreneurs tend to overestimate their offering’s potential to go viral, its mass appeal, and the immediacy of need for such an offering. Schwartz wrote:

“The truth is that while virality, mass appeal and urgency lead campaigns to success in the world of rewards-based crowdfunding, they’re not core tenets of general solicitation efforts. Both fields fall in the family of online fundraising, but crowdfunding and general solicitation are more like cousins than siblings.”

What this means is that you can’t pitch a startup to crowdfunders and general solicitation investors in the same way. The main difference, according to Schwartz, is that for general solicitation investing, people are more apt to invest in people. Sure, the information you present online might draw them to your business. But investors will still want to know more about your background and track record before making a commitment.

So while factors like mass appeal and virality shouldn’t necessarily be discounted, it’s important not to focus too much on them when looking for general solicitation investments. The factors that appeal to certain investors won’t appeal to others. So if you present information accurately and provide an open line of communication with investors, you can tailor your pitch to their particular needs.

Two Computers Photo via Shutterstock

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Annie Pilon Annie Pilon is a Senior Staff Writer for Small Business Trends, covering entrepreneur profiles, interviews, feature stories, community news and in-depth, expert-based guides. When she’s not writing she can be found exploring all that her home state of Michigan has to offer.

2 Reactions
  1. Crowdfunding is an intriguing opportunity to raise money as well as get a significant boost in awareness and PR. So it can be a real win-win. However, just because a bunch of people give you $50 doesn’t mean you have a successful business model that will succeed. It means you have a cool idea. Execution is still the name of the game.

    • Yes, and using different methods of gaining funding require different strategies. So you have to really know and pay attention to the differences.