How to make crowdfunding a little less risky

Enrique Dans
Dec 3, 2014 · 3 min read

For some time now I have been paying special attention to the topic of crowdfunding in my innovation courses at IE Business School. A reward-based incentive, it can mean offering would-be investors the simple pleasure of being part of something, through to preferential access to the product, and taking in free t-shirts, merchandizing, etc along the way. It gives entrepreneurs the chance to obtain financing when they most need it: during the early stage of a project, meaning they don’t have to give up a share of the company to bring in money.

This type of crowdfunding obviously comes with risks: the creators of a project agree that they will hand over the product in question by a certain date, but the reality is that delays are very, very common. Problems to do with development or manufacture, or just simple lack of experience, can create delays, and have generated considerable anger among those who have put money into a crowdfunding project with certain expectations.

With these kinds of problems in mind, crowdfunding site Indiegogo has just announced that it will offer an optional insurance policy for projects on its site. In the illustration is the Olive wristband, which supposedly can monitor and control stress levels. The main incentive to investors is the chance to purchase the wearable, a charger, and the app that goes with it for just $129, with delivery estimated for November 2015. For a further $15, Indiegogo promises you will get the product by a maximum of three months from that date, otherwise it will refund your money.

Moving a project from the idea phase through to a prototype and then mass production is a huge challenge, and very risky, given the huge number of factors involved and all that can go wrong in managing a team, for example. Anybody shelling out cash based on a promise of early access at a bargain price to a product must also understand the risks involved, but that doesn’t mean that they aren’t going to be annoyed or frustrated when things do go wrong and there are delays in receiving their product. The idea of taking out insurance at a modest price seems an interesting one.

The insurance company is clearly taking a major risk here, given that delays are pretty much the norm on crowdfunding sites and the large numbers of people involved in backing a project. But the risk is reduced the more projects there are on a site, and knowing that they had insurance would certainly make many people feel more comfortable about getting involved.

Indiegogo still tends to be seen as the second option after Kickstarter, although the latter has acquired a reputation for not supervising the projects on the site. In which case, the former’s decision to offer insurance could turn out to be a smart strategic move. For the moment, the initiative seems to be in the pilot phase, but I would say that this is something that Indiegogo may well decide to run with.


(En español, aquí)

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

    Enrique Dans

    Written by

    Professor of Innovation at IE Business School and blogger at enriquedans.com

    Enrique Dans

    On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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