Now let’s get one thing straight from the start: I’m a huge fan of Kickstarter, Indiegogo and the number of similar crowdfunding sites that have sprung up recently to provide capital directly to exciting business ideas. There’s something very “American Dream” about being able to build one-on-one engagement with consumers — not to mention how nice it is for companies to have a viable alternative to traditional VC and angel capitalization.
That said, Kickstarter (or any other crowdsourcing platform) isn’t a viable option for all companies, and I believe it’s irresponsible at best to herald the company as a “people-first,” egalitarian solution for all business financing needs.
In particular, here are five reasons some business owners should not pursue crowdsourced funding:
Reason #1: You can’t offer a discrete product.
The most effective Kickstarter campaigns (like the $10+ million raised by smartwatch creator Pebble) are those that will eventually deliver a discrete product. That product might be physical or digital in nature, but the end result is a deliverable that buyers can interact and engage with.
Unfortunately, this means that crowdfunding isn’t the right solution for every growing business. If, for example, your company provides a service or produces an enterprise-level product (which may not generate the same public interest as consumer goods), you may be better off pursuing traditional financing options than investing the time needed to apply for and run a Kickstarter campaign.