Becky Center is the CEO of Indiegogo the crowdfunding platform that unites innovators with early adopters.
Startups are an interesting business case. Often established to challenge an entrenched player in the market, frequently, they are doing something better, cheaper and faster. However, a lack of marketing resources and credibility can leave consumers wary of buying in. Buyers hesitate to switch to new products if they don’t know about them, so it’s essential they feel assured that the new product or service will still be around in a year if they choose to start using it.
Crowdfunding came into play in a formal capacity a little more than 15 years ago as a new and innovative way to introduce consumer audiences to the next “big thing.” However, during crowdfunding’s infancy, there were growing pains. As a new category itself, platforms experienced some early campaign launches that attracted much hype and backing but eventually failed to deliver a completed product.
By 2022, crowdfunding grew into a $520 million market in North America alone, with its key learnings and best practices becoming a model for marketplaces that have come after it: trust and safety.
In order for crowdfunding to be most effective, the platform should offer tools and mechanisms that increase the trust that both entrepreneurs and backers place in the platform. A successful crowdfunding platform uses a thoughtful approach to campaign backing rather than establishing a “free-for-all” where anyone can raise money for anything without any security and trust built into the process.
Here are some measures that backers and entrepreneurs should ensure crowdfunding platforms have implemented to promote a positive experience.
Accountability
Having a dedicated (human!) team who reviews campaign proposals, validates the soundness of the product or service, and asks pointed questions to the campaigners about the feasibility of all promises. Cost and delivery of the final product is key. The team serves as a trust review board to help ensure the product or service is set up for success even before it goes live in front of its intended backer audience.
Expertise
As a marketplace for early-stage companies in new and up-and-coming product categories, it is essential that the internal trust and safety team has domain expertise in each category or one that behaves similarly. The real estate category, for example, is seeing growth in the way of “bubble” hotels that play on the increased market demand for glamping. As we saw at Indiegogo with EVs, the increase of e-bikes entering the market has also introduced new elements to consider in terms of manufacturing and use, requiring processes to be in place to ensure project viability.
Coopetition
Once a market is more mature, an industry alliance is a natural next step and a great system to share industry trends and best practices. Coopetition, in this case, means banding together to drive any changes needed within the industry to increase confidence and to make the whole system as safe as possible. Backers can be more assured their interests are being represented if the platform they are using to back campaigns is part of a crowdfunding trust alliance.
Fraud Prevention
While it seems like a given, don’t take for granted that a marketplace has all the back-end fraud prevention covered. Backers should always read FAQs to ensure the crowdfunding marketplace has a payment protection technology in place. The best tools can analyze where the payment link is initiated and identify which users are connected with which campaign.
With venture capital funding harder to come by, more entrepreneurs are relying on crowdfunding to attract market interest and funds that help bring a product or service to life. Today, discretionary income is more precious than ever, with backers even more cautious about what they choose to support. Ensuring trust and safety measures as outlined will be critical to the continued success of crowdfunding.
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