Did you know that 70% of crowdfunding campaigns fail? What's more, this number accounts just for those campaigns that fail to reach their funding target. There are many campaigns that fail to deliver what they promise even after getting fully funded.
What happens if a Kickstarter fails? If it fails due falling short of its funding goal, backers aren't charged any money. If it fails to deliver its promises, backers can pursue legal options. Campaign creators can relaunch their campaigns with better strategies despite failing to reach targets.
There are different definitions for 'failure' when it comes to a crowdfunding campaign and your options depend on the type of failure experienced. Let's take a deeper look at how campaigns can fail.
Types of Failure
A failed crowdfunding campaign is a bummer for both backers as well as creators. From a creator's perspective, you spend many hours planning your strategy and to see all of your efforts come to naught is pretty deflating.
As a backer, you contribute because you believe in the project and it can be disheartening to see it fail to reach its goal or not deliver in other ways.
There are two ways to define failure with regards to crowdfunding:
Campaign doesn't reach its funding target
Campaign does not deliver its promises despite reaching its target
So what are the backers' and creator's options in each scenario? Let's take a look.
Campaign Does Not Reach its Funding Target
From a backer's perspective, you will not be charged by the platform until the campaign reaches its funding goal. So you can rest assured that if the campaign misses its mark by even a cent, your money will never leave your hands.
This does bring a great deal of security to backers. Perhaps the biggest security blanket you have in this case is that the crowdfunding platform is still on your side.
During the funding phase, you've effectively entered into a tripartite agreement between yourself, the platform and the creator. The platform agrees to host the campaign and publicize it as best as they can and charges creators a fee for it.
In other words, they don't get paid until the campaign is successful. It is important to note that the definition of 'success' as far as the platform is concerned is whether the campaign reached its funding goal or not.
From a creator's standpoint, you have zero risk as well, discounting any loss of reputation. Crowdfunding is a risk free way to test and launch a new product in the marketplace and if your campaign doesn't reach its goal, you have instant feedback that the product just doesn't work.
You won't be charged anything by the platform and your backers won't have to worry about anything either.
Best of all, you've now collected ample data on what works and what doesn't and you can use this to fuel your next campaign. All in all, failing to meet your funding target isn't all that bad!
Once your funding goal is hit, this is where things get a bit more complicated.
Campaign Reaches its Target but Doesn't Deliver
Many creators fail to take into account the fact that crowdfunding success, from a creator's standpoint, is measured by the degree to which you deliver your promises.
You can raise all the money you want but that cash isn't a free lunch. You need to actually carry out what you said you would do and if you don't deliver, backers are free to pursue legal options.
It used to be the case earlier that backers were willing to write off their contributions as a bad choice, and many creators simply kept the money despite not delivering anything tangible.
However, this has changed a lot recently.
You can be held legally liable and backers will sue you in court for not delivering a product or whatever it is you promised them in your pitch.
This is extremely good news for backers since crowdfunded products carry a higher degree of risk than the usual pre-order range of products you can find on the market.
If the campaign does reach its funding goal, you will be charged and this where your risk increases exponentially.
This is because the crowdfunding platform is officially out of the picture at this point. They will charge the creator their fees and from this point onward, the transaction is treated as a deal between you and the creator.
So now, the failure and success of the campaign depends on whether the creator can deliver. In this regard, there's not a lot of good news for backers.
The majority of crowdfunded campaigns struggle to succeed. This is due to the fact that many creators focus far too much of their efforts on marketing their campaign instead of focusing on how they're going to deliver.
By its very nature, crowdfunding attracts the sort of person who loves dreaming up new ideas and creative solutions.
Unfortunately, many of these solutions fall into the impractical side of things.
If a backer successfully sues you in court, you will be obligated to return their money to them. This is the case even if you've already spent their money developing your product. A lot depends on the discretion of the law but there's no denying that the whole process is a headache for both backer and creator.
The best thing to do is to avoid such a scenario entirely.
So what can backers and creators do to avoid unpleasant situations such as this in the first place? From a backer's standpoint the best thing to do is to avoid pledging too much money.
This sounds like a harsh thing to say but the fact is that the statistics prove that most crowdfunded campaigns fail.
No matter how brilliant you think the proposed product is or how passionate you are about the project, you need to protect yourself. Pledging a large amount of money that you will sorely miss if it's gone is a bad thing to do.
Evaluating the campaign pitch itself is a good thing to do. Does it seem realistic that the creator can deliver on their promises?
A good indicator of their ability to do so is the expertise of the creator. Do they have experience in this domain? If not, do they have a solid team around them that can deliver this project? Don't hesitate to ask tough questions!
As far as creators go, there are many things they can do. The first and most obvious course of action is to be realistic about their capabilities and to review their primary reason for seeking funding.
This doesn't apply to many creators but there are a few campaigns that are launched as vanity projects. Don't use the funding campaign to massage your ego.
If you do have a great idea that you believe you can deliver, it helps to hire the services of someone who has expertise in the domain to give you a second opinion. This person can be a part of your team or it could even be a friend.
Some creators inadvertently fail to consider realistic possibilities due to unfamiliarity with the crowdfunding process. It can be tough to come to grips with the various moving parts you'll have to juggle, so talking to someone who can help you with this is a good idea.
At the end of the day, no matter how much you dream of your product and its capabilities, keep in mind that you have a responsibility towards your backers. You're seeking their financial assistance so you have to deliver.
No one wants a crowdfunding campaign to fail but it does happen quite often. Understanding your options both as a backer and as a creator is essential to avoiding failure.
Backers have little to fear so go ahead and contribute what you can to a campaign that excites you!