Crowdfunding: Funding Alternative or Sales Channel

crowdfunding-imageWhenever I have time, I love to go to Indiegogo or Kickstarter and take a look at the active campaigns (mostly for tech stuff). In addition to fueling my optimism – seeing so many creative people get somewhere with their ideas – it’s also a good way to spot trends, again, mainly in the Consumer Electronics market. For example, seeing that pretty much all consumer, inexpensive, 3D printer campaigns close overfunded does confirm the interest in the field.

Then I usually come to a point where I wonder how many more power banks, convertible cables and other cellphone-related accessories can this world handle. Naturally, all are ‘the pike of innovation’ and -almost- all manage to close the campaign successfully. Nonetheless, I very rarely see or hear these groups later on in the market, and much less in the M&A or VC news.

Moreover, recently, I started to notice that some groups seem to specialize in running campaigns after campaigns, promoting a product and, almost as soon as the campaign closes, opening a new one for another product or, in some cases, another ‘limited series’. I’ve seen such cases in the categories of watches and other jewelry/fashion items, consumer electronics, cellphone accessories, etc. This article/interview is a good example of one of these ‘crowdfunding serial entrepreneurs’ (and also gives some insight as to why choosing to do it this way).

So why all this rambling one might ask. Well, simple, crowdfunding has always been presented as a new, ‘disruptive’ alternative to traditional funding available to entrepreneurs: debt, angel/VC money, etc.

The general idea is simple, if your idea is good enough, you’ll find people willing to drop some cash to get it and/or help you make it reality.  Running a campaign on Kickstarter or Indiegogo (or the like) has the attractive aspect that you get bridge financing to fund your working capital requirements until your project comes to term and you don’t lose equity or control doing so. Actually, you don’t even have to pay interest on this money, just pre-sell it at a discount over MSRP.

When presented like this, it is no wonder that some saw in crowdfunding, more than a way to raise money, an attractive new direct sales channel. After all, where else can you get customers so eager to get your product that they are willing to pay for it many months in advance and assume the risks of never getting this money back  AND, in addition, actively promote your product and company to their friends and family, either for a referral benefit or just because they genuinely love your product.  Even Apple -famous for the insane behavior of their customers for every new product release- has not yet found the way to sell the next iPhone a year in advance to their die hard fans to fund its R&D and manufacturing!

So, where is crowdfunding heading, funding alternative or new distribution channel?

Image Credits: iStockPhoto.

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