In the modern era of the internet, new ways of buying, selling and investing are constantly being created and tested on the market. One of these amazing creations is the phenomenon known as crowdfunding. As with everything, however, there are associated risks.
Briefly, here’s how crowdfunding works: a designer or inventor has a new idea but doesn’t have the funding to get it off the ground through conventional means. Instead they create a profile on a platform, such as Kickstarter or Indiegogo and offer a discounted price to early “investors” to get the initial funding.
They might offer a 30% discount on their new innovative blender or board game, and set a goal at 500 units. If enough people are interested and buy this product, the creator will reach their goal and raise the seed money. They then use this to get their product produced and send their supporters a unit before releasing it on the normal market.
For the customer, the upside is that you get to be part of the creation of an exciting product, and you will almost always get a significant discount. The downside is that there may be long delays in the production or even bankruptcy. It could take months or years to get your money back, if at all.
Crowdfunding has been plagued with many scams, con artists listing fake products and then taking the seed money and disappearing. It is important to note that the crowdfunding platforms themselves are only responsible for the money until the deadline is met and they pass along the fund minus their cut to the entrepreneur (a notable exception is the Canadian Trucker convoy when they refused to deliver the funds). Scamming on the part of the entrepreneur is possible, and it is up to each individual to weigh the risk for themselves.
Despite mixed reviews, crowdfunding has proved to be an amazingly effective way of raising funds and getting products off the ground without corporate backing. Much like the gig economy, this modern method has proven to be successful and will hopefully open doorways for more honest innovators.
