Crowdfunding is booming as a way to promote a small business idea. And new rules for equity crowdfunding could mean even faster growth for investors. More than $16.2 billion was raised in 2014, more than half of which came from North America (where crowdfunding grew by 145 percent from the previous year). In fact, growth in North America was only surpassed by South America – where crowdfunding grew 167 percent – and in China, where volume in the online phenomenon surged by 320 percent over the year.
But don’t think crowdfunding is just about raising money. The benefits of crowdfunding go well beyond fundraising. These include:
- Product advice and insight that would normally cost thousands:
Your campaign supporters will tell you exactly what they like and don’t like about product ideas and features. It’s like a focus group of thousands.
- A community that includes lifetime supporters of your brand:
Crowdfunding backers feel a special buy-in with the businesses they support because they feel like they helped make it possible.
- Free marketing on websites that reach millions of people:
Your campaign is an entire page dedicated to your message and brand. People will actively watch your video, read your message, and share it with their friends because they see it as a special project – not as a commercial.
If crowdfunding is such a great opportunity, then why have only about two percent of small business owners used the approach, and why do 63 percent of campaigns fail to reach their funding goal?
Crowdfunding isn’t as easy as throwing a campaign online and waiting for mountains of money. It’s no longer enough to post a video and a personal message to supporters. From start to finish, five common pitfalls continue to trip up business owners and prevent them from crowdfunding success. Understand and avoid these common small business crowdfunding pitfalls to get the most out of your campaign.
Crowdfunding Pitfall #5: You ignore the legal side of crowdfunding
Despite the social nature of crowdfunding, the internet can still be a very uncertain place. You won’t find any demarcation lines between countries, or a formal police force with jurisdiction over the World Wide Web. While copyright and patent laws still apply, they can get lost in the immense growth of crowdfunding and the breadth of the internet.
Last year, Kickstarter alone received 282 claims under the Digital Millennium Copyright Act, including 28 claims of trademark violations. Of those, action – removing images, videos, and/or deleting projects – was taken on 44 percent of the claims.
Don’t think you can freely use other people’s intellectual property or that yours is completely safe on the web.
- Seek legal counsel on patent and copyright protection before pre-launching your crowdfunding campaign. You have one year after publicly announcing a product to file a patent application. After that 12 months passes, you won’t be able to get patent protection.
- Do not divulge trade secrets to campaign backers or on your crowdfunding page. Your community of backers can be instrumental in product development, but make sure you sign non-disclosure agreements with anyone that gets special access to information.
The Takeaway: The informality of the internet can be deceiving, especially in crowdfunding. Make sure you protect any intellectual property with patents and copyrights. Do not plagiarize work or infringe on copyrights or patents.
While these aren’t the only pitfalls in crowdfunding, they commonly trip up campaigns and can keep you from achieving your goals. Focus on the takeaways from each pitfall and put together a broader view of the benefits. Look closely at what crowdfunding can do for your business and you may find that the money is little more than an afterthought.
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