But speak to any campaign team, successful or not, and most will only mention money as a by-product. Instead, what the casual observer might see as ancillary benefits are actually understood by savvy startups as the primary purpose of crowdfunding: to determine if there is demand for an idea or product before making risky investments. Indeed, as Ethan Mollick and Venkat Kuppuswamy – authors of After the Campaign: Outcomes of Crowdfunding – write:

“Crowdfunding is not just a means for immediate funds. Rather, it’s a way to validate ideas, test markets, launch brands, find customers and impress investors.”

Marketing, not money

The most basic mistake a crowdfunding campaign can make is to focus solely on boosting profits rather than building awareness. Funding should be seen as validation that an idea has an audience; to affirm if it really is a good idea. If the crowd gets behind it and feels invested in it (both literally and figuratively), then the entrepreneur will have tested and marketed a product with very little risk. Even if they don’t, it will still count as a valid trial which can inform any iterated offering. There can be no better mode of market research.

At its heart, crowdfunding is a participatory tool focusing on people, not just pennies. It enables a budding entrepreneur or business student to apply their knowledge in a physical setting – upholding the Aristotelian belief that we learn by doing. This is why crowdfunding on campus is so important: where better to introduce the idea of enterprise than at university, where intellectual, financial, and, critically, social infrastructure abounds? Whilst a lecture or textbook can teach key principles, crowdfunding presents an opportunity for hands-on learning, allowing students to participate in, and feel empowered by, their own education.

Moreover, a university campus represents an engaged community of students, teachers, staff and alumni. Here, the budding entrepreneur will find a willing audience to test and validate their idea (and hopefully throw in a little spare change if they’re interested) – or show them they need to go back to the drawing board. In fact, it is ‘failing well’ – not achieving the stated financial goals but tapping into a target audience and learning more about market demand – that can teach the most valuable lessons.

The proof is in the pudding

One young entrepreneur who understood the importance of ‘crowd’ first, ‘fund’ second, was Yannan, a Warwick University student who wanted to sell unique tea-based products. In the first iteration of her campaign, Yannan intended to open a tea shop in Leamington Spa, a quaint Midlands town – teeming with tea rooms.

Realising her audience would not stump up support in an already saturated market, Yannan reworked her offering, focusing instead on selling her ‘Teamisu’ – a tasty tea and tiramisu treat – rather than taking on the risk of an entire premises. Within two months, Yannan had lined up her first commercial partner and prepared her market test, pre-selling her products on Crowdfund Campus. In fact, her campaign not only went on to be over-funded, but also affirmed that her ‘crowd’ were prepared to pay a profitable price. Since no brand (however tasty!) can trade without a loyal band of customers, it is this test of desirability and viability that must been seen as the real value of crowdfunding: it’s not about the money, it’s about the market response.

“The medium is the message”

When done well, a crowdfunding campaign can teach so much – far more than investment alone. Here at Crowdfund Campus, we support students and universities seeking enterprise education and profit sources, providing both a simulated experience (called Sandpit) and a live marketplace. If you would like to introduce crowdfunding to your classroom and lead an enterprise renaissance on campus, please email support@crowdfundcampus.com – it would be our pleasure to show you around our setup.

Don’t know enough about crowdfunding? Why don’t you read Alex’s piece on ‘what is crowdfunding?’ first

So why should I care about crowdfunding?

• The crowd can get behind an idea

Unlike traditional sources of finance that are primarily looking for a financial reward, crowdfunders are typically contributing towards a campaign because they believe in the purpose of the project. They want to be a part of the campaign and to make the project happen. A great example of this was Solar Roadways. Solar Roadways managed to raise over $2million because the general public thought that this was a brilliant idea that needed to exist in the world. Backers got little more than thank yous, hats and bags.

• Benefit to the economy

Small businesses are the engine of the British economy. According to John Longworth from the Guardian, “Small businesses make up 99% of the 5.2m businesses in the UK, yet rarely receive the public’s attention or praise. Not only do they deliver jobs, growth and prosperity for millions of people across the UK, they have also played a fundamental role in driving our economy out of the recession.” Crowdfunding gives the general public access to these small businesses, and is quickly becoming their preferred funding source.

• Staying away from the banks

As this article in the New Economy states, “Crowdfunding is threatening to supplant the banking industry’s status as the go-to source of finance for small businesses.” In one sense this is not too big an issue for the banks, who probably see these opportunities as too high risk to lend money to anyway, but I expect they are keeping a close eye on the crowdfunding sector. For the time being though, crowdfunding represents a way to raise money from friends, family and the market at large, validating ideas and raising funds on better terms for the enterprise.

• Disintermediation

I have to be a bit careful here, because I could and probably will write a whole article on this topic alone. There are advantages and disadvantages to disintermediation (where intermediaries like banks and fund managers are bypassed as savers decide where to put their own money). “The digital landscape has created new bank managers; the public” writes CapGemini’s Patsy Neville. In this environment of low trust in the banks and high bonuses for bankers who seem to be reaping more rewards for managing money than those for whom they are managing money, is there something to be said for taking a little more responsibility over your own money? To be continued…

Conclusion

In essence, there are quite a few reasons introduced here to explain why you should care about crowdfunding. As an entrepreneur or business owner its an increasingly attractive form of generating sales or raising finance. As a contributor you can make great ideas come to life, take responsibility over your own finances, and for the time being, crowdfunding can provide an alternative to the banks.

Photo credit: David