If you are unsure what crowdfunding is then watch the 90 second video at the end of this post. In effect there are two types of crowdfunding, these are;
- Debt Finance (borrowing and repaying)
- Equity Finance (investment in your business)
Debt Finance takes the shape of an ordinary business loan, maybe invoice finance or anything that you take then repay. Equity finance is raising money in exchange for part of your business, or for a reward other than interest or repayment.
Why Crowdfunding Fails
Let’s get one point made clear. There is an abundance of wonderful business ideas, great new products and plenty of initiative. The bit missing is that there is too often a shortage of credible business operators to make these business ideas happen.
It doesn’t matter how good your idea is, you still need a P&L, still need forecasts, still need to manage cash and logistics etc. In other words you need to get the boring bits right.
The difficulty is that an ideas person is rarely good at the detail, it’s just human nature. An entrepreneur can sell their business idea any day of the week, proving they can measure the detail and exercise control is something altogether different.
It is a bit like asking Messi and Ronaldo to play in defence, great players but it just doesn’t work.
We have seen entrepreneurs launch crowdfunding projects which have decent controls, good systems, good bookkeeping controls etc. However it is rare that the same entrepreneur can actually explain how these controls work, let alone prove how they can use them to run a business.
That is the failing. Sell an idea, easy. Prove you can control your business, much more difficult. Because controlling a business does not often float an entrepreneurs boat they tend to focus less on it.
There are solutions which can reduce the failure rate of crowdfunding projects, if you want to know more then give us a call. It is all about people & preparation. Any questions about the post then get in touch or add your comments below.
By Dave Farmer