Research Key to Crowdfunding Platforms

LOS ANGELES-With so many new crowdfunding campaigns cropping up, managers have a wide number of options for which online platform to use for marketing and fund-collecting purposes. With more than 800 platforms out there, those new to the game may be tempted to choose one that is popular and offers the “easiest” system for managers, but this could be a mistake if the platform doesn't meet the fund's needs in the end—and it can get expensive.

“Where there are a few crowdfunding success stories, 60% of campaigns raise little or no money on platforms,” Alon Goren, founder and CEO of InvestedIn—a Los Angeles-based white-label crowdfunding company that has helped entrepreneurs raise more than $32 million—tells GlobeSt.com. Add to this recent news stories about crowdfunding platforms that have reported insolvency due to the high costs, despite 15% fees—and “it's apparent that the commission-based model is encountering problems and may not be serving entrepreneurs as well as hoped.”

In fact, it might be more cost-effective and overall more effective for fundraising purposes for fund managers to skip the platform completely and launch direct-funding campaigns on their own websites, says Goren. “It's not the commissions themselves that are the problem, but it's one of those things where you don't always get what you pay for. As we learn what works and what doesn't with crowdfunding campaigns, you often realize that paying commission isn't really worth it. You might be better doing it on your own, or maybe using a site for a niche market that you're into. You may pay more than 5% commission, but it might bring a better audience to your campaign.”

Goren adds that statistics show that nobody brings contributors to a campaign better than the person who created the campaign, and 99% of campaigns only raise money from their own networks. “Very few get the network effects of being on a [more popular] site, and why do it when you already have a do-it-yourself network of potential contributors?”

Goren says some campaign managers have raised millions of dollars by not using any other site, and he says there are free tools available for building this type of site. However, some campaigns may find more mainstream sites like Kickstarter make more sense for them.

“The number-one thing you should do is start with your own network,” says Goren. “That's more important than which crowdfunding site they use or how they use it. That's what's going to make you successful, no matter where you are: Facebook, LinkedIn, Twitter. That's going to be the central hub for everything you do. From there, you can see what's next.”

What's next depends on what you want to accomplish with your campaign and what or how you want to give in return: all or nothing. “If you want to keep what you raise, different sites are better for that. If you want to define all your own terms and do your own branding, you can launch it yourself,” says Goren. “Some tools are more technical to use, and some you can be a complete novice so you don't have to be a complete computer nerd to work them.”

The story and culture of the campaign and its management will help decide which course is best. 'It's also the amount of effort you want to put into it,” says Goren. “The only way to have full control is to do it yourself.”

Doing it yourself also allows managers to distinguish themselves from other funds and put out the exact message they want to convey about the fund. It also prevents loss of finances from a platform that goes south. “You don't know where the money is going,” says Goren. “They could take your commission and go bankrupt the next day, so is that really putting it to the best use? Do your due diligence before even considering going on a platform.”