Is crowdfunding the future of investment?

August 07, 2015

Crowdfunding has emerged as a meaningful alternative to traditional funding approaches. The movement has evolved from being a fringe activity for artists to pilot new projects, to a $5 billion market over the last 5 years, driven largely by the millennial generation and younger “digital natives” that have a strong connection to the Internet.

Despite this early success, the crowdfunding market is still penetrating the mainstream and the “tipping point” is about to happen. Once it does, we’ll see more sites that look and feel like modern crowdfunding platforms. For example, at RocketHub, we’re implementing behind-the-scenes projects with Fortune 500 companies that are looking to leverage social funding as a discovery experience for their customers. Other large groups see crowdfunding as a “digital incubator” for new ideas that can be plugged into their existing development process.

Crowdfunding trends

The fastest growing group of entrepreneurs on RocketHub is startup entrepreneurs looking to take their ideas and build them into real businesses. This up-trend dovetails with the maker-movement, the co-working movement, and the overall sense of impact and freedom that comes from launching your own venture. The government’s Jumpstart Our Business Startups (JOBS) Act, which enables individuals to invest through crowdfunding, also holds much promise for new startups looking to leverage the crowd for capital.

However, despite what the headlines show, crowdfunding platforms are not “free money trees” – crowdfunding is work. To run a successful crowdfunding campaign, an entrepreneur must consistently communicate well and promote effectively across a variety of communications channels. A positive end result goes beyond meeting crowdfunding goals; it also includes increased awareness of the product or service that is being promoted. In fact, we get consistent feedback that the “awareness effect” of a crowdfunding campaign can be just as important, if not more than, the funding component.

Advice for crowdfunding hopefuls

The crowdfunding success formula starts with this: Tell a fantastic story, be yourself, and showcase “why” your product matters. Study other successful campaigns, and read up on “how-to” materials. Once you’re ready, put your best efforts into the communication, and then commit to the promotional process.

Keep in mind that crowdfunding can be an emotional roller coaster. It can be surprising to see who funds, at what amount, as well as who does not fund(!). There will also be surprises—both positive and negative—in terms of feedback and funding. The process often galvanizes and builds a community-base of customers who care dearly about the product they helped launch.

Crowdfunding has emerged as a meaningful alternative to traditional funding approaches.

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