The Effects of a Failed Crowdfunds

Olivia Clifford |

With sites like Kickstarter making the process of crowrdfunding easier and more accessible, there are more and more American entrepreneurs who are jumping on the bandwagon to fund their vast ideas. When diving in and starting your own crowdfunding project there are many aspects that go into making sure its advertised correctly and gaining the type of internet traffic necessary to entice people into investing in the project. Within the last year there have been many notably successful projects, such as Rob Thomas’s Kickstarter for the Veronica Mars movie that raised around $5,702,153 or the Pebble E-Paper Smart Watch that raised over $10,000,000

For every successfully funded crowdfunding campaign there are many more that failed. This is the reality of a funding strategy that is based on getting the interest and money of the general public. When a campaign does fail there are many harsh realities that the project heads have to face. The two most important repercussions are the psychological repercussions of failing for the person and the campaign as well as the reimbursement process.

When starting a crowdfunding project with companies such as Kickstarter, you are agreeing to their reimbursement process. If the crownfund fails to reach the minimum needed to fulfill the project as well as the promised rewards, the website then automatically reimburses all registered investors at the end of the time period. This is an efficient and easy way for those project heads to give their investors their investments back in a quick and efficient manner. This act of quick act and agreement of reimbursement can have a positive impact on many campaigns if people know that they are either going to get the product that they are investing in or their money back. 

On of the hardest, if not the hardest hurdle to overcome when a crowdfunding campaign fails is the public perception. Once a campaign fails and they don’t receive their goal funding, there is a negative connotation that goes with the finds overall goal. There is the option to gather more information, get more advertising and generate more hype for the project and start over again, but at that point there are many of your original investors who have lost faith in the idea. There are also many people who are afraid and don’t want to be associated with failed projects. This can make many people very hesitant to invest in the fund in the first place. The second factor is the psychological factors of a failing project on the project’s creator. Its hard for a project creator to put their time, effort and in most cases personal finances into a project and watch it fail in front of their eyes. There are many beneficial factors that come with starting and utilizing a crowd fund project, but the downsides can have a huge impact on the creator and community built around it. 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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