Dave Lavinsky on The Pros & Cons of Crowdfunding

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Growthink President and Co-Founder helping you decide if crowdfunding is right for you

Dave Lavinsky, co-founder and President of Growthink

Dave Lavinsky, President and Co-Founder of Growthink, Inc. wants to speak out about the pros and cons of crowdfunding. Lavinsky, a Business Planning and Funding Expert, wants to reveal that similarly to any funding method, Crowdfunding has its pros and cons. He wants entrepreneurs and startups to be fully informed with a plan for addressing each of them.

Lavinsky insisted on stating the Pros due to his strong advocacy towards crowdfunding efforts for entrepreneurs. “One of the key benefits of crowdfunding is that it's a very simple method of getting funding,” says Lavinsky.

He implies that the big turn on for entrepreneurs when weighing funding options is that crowdfunding allows you to raise money from non accredited investors without the countless legal issues that often trail behind typical investors. Lavinsky said that most importantly, crowdfunding makes it possible for your great ideas that do not appeal to conventional investors to get financing from “the crowd.” Not only does crowdfunding provide money to start a project, is also secures evidence of support from potential customers. In addition, he stressed the fact that it also contributes to word-of-mouth advertising which is arguably the best way to hook consumers.

Here is what he aims to share on the different variations of the funding, “An entrepreneur who uses crowdfunding generally uses websites to solicit small contributions from people who are not typical financiers.”

There are a few different ways to do so:

1) The entrepreneur may solicit pledges to back an idea in which no material is offered in return for pledges. This type of crowdfunding has long been used for artistic patronage or charity fundraising.

2) The other variation, which has recently become extremely popular, is when the entrepreneur gives rewards (typically the product or service they are developing) in return for pledges.

3) Lastly, at times, the threshold approach to crowdfunding is used. When this type of crowdfunding is used, all of the pledges will be voided unless the threshold amount is raised by the set deadline.

When it comes to the Cons, Lavinsky feels people must know that “In spite of the many advantages to crowdfunding, there is one big potential disadvantage. When someone solicits crowdfunding, one of the requirements is to disclose the idea that needs funding.” This exposes the idea's owner to the risk of his/her project being copied by competitors who have better financing. If the competition releases the idea before funding can be raised, the owner of the original idea risks losing market share. “This is something very unfortunate for the people in search of funding,” Lavinsky adds.

He has a few examples of possible incidents that can arise due to lack of disclosure which clarified his earlier statement. One that stood out went along the lines of this; say you’re an entrepreneur who has developed a new type of toothpaste that better prevents cavities. However, you lack the necessary funds to get the project off the ground, so you decide to turn to crowdfunding. But, an executive at Colgate-Palmolive sees the campaign, and before you have time to collect the funding that you need, the product is on the shelf with Colgate-Palmolive’s name on it.

But Lavinsky says, “While many entrepreneurs are paranoid about their ideas being stolen, this risk doesn't bother me at all. Why? Because while your ideas are important, executing on them is more important. Most people who hear your idea won't be able to execute it. Realize that once you introduce your idea to the market, if it's good enough, others WILL copy it. So, focus on executing your idea, not protecting it, unless there is intellectual property you can file, in which case, do so.”

He went on to talk about the likelihood of large companies taking your idea, like in the toothpaste example above. Lavinsky says that “its not a big concern”, instead, “Large companies are generally very poor at launching new products and it takes them a long time to do. They prefer to wait to see if your product will be successful and if it is, they are generally prone to buy your company versus building a competitive product from scratch.”

In summary, Lavinsky wants to stress that crowdfunding has the key advantages of being a quick and easy way to raise capital, while also helping you build a customer base. The potential disadvantage of it exposing your idea to competitors and/or copycats he says, “is overrated”. “It's just not that big a deal,” says Lavinsky. He wants entrepreneurs from all over to jump on this information and run with it.

So, if you need funding, and have the ability to quickly turn the funding into a viable product or service, then Dave Lavinsky is the man to talk too. He says you must learn how to crowdfund as soon as possible, raise the money, and start building your business.

Growthink helps entrepreneurs become more successful. Since 1999, they have helped over 500,000 entrepreneurs to successfully start, grow and/or exit their companies. Lavinsky has managed more than 150 client engagements across all of Growthink's practice areas and accomplishes this through their suite of services and products that solve the key needs of entrepreneurs.

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