When it comes to starting businesses, some entrepreneurs are taking an alternative route to conventional venture capital fundraising – what industry calls “crowdfunding.”
Crowdfunding, raising money from the public via online resources such as Kickstarter.com, is a relatively new phenomenon. Its potential to propel entrepreneurs to success has recently risen to the forefront, as more and more users on Kickstarter accomplish funding of their careers and businesses.
Ethan Mollick, a management professor at the Wharton School and a 2012 Mack Center funded researcher, weighed on in the phenomenon in a recent article for the Boston Globe. Despite the possibility of incredible success, Kickstarter is not without its drawbacks.
“One of the problems with Kickstarter is that you are locked into delivering a product to the people who backed you,” said Mollick in the article, drawing upon research on the dynamics of Kickstarter that he published in July 2012. Success is based on donors’ generosity, which sometimes leaves creators overburdened by demand. Due to Kickstarter’s unpredictable nature, well-funded campaigns do not always deliver their products or services on time.
Despite these caveats, however, Kickstarter remains a highly viable option. In July 2012, Dan Gablik and Lalit Kalani (both WG ’11) successfully funded their company, Bandar Foods. Bandar specializes in a culinary phenomenon called “Monkey Sauce”, a Western-Indian fusion mango-pickle hot sauce based on a recipe from Kalani’s mom.
While Bandar’s commercial triumph is no doubt based partly on luck, strategy is the primary contributing factor. Gablik and Kalani had a real, tangible product, one that was unique and, once purchased, easily accessible to customers. They utilized an untapped niche in the market (fruit-flavored hot sauces, anyone?) and let customers tap into its manufacturing.
Aspiring entrepreneurs, whether at Penn or elsewhere, would do well to remember their plan – traveling the road less taken can have unexpected positive consequences. Contributors, too, can gain a lot from Kickstarter, particularly the sense of being part of something bigger than themselves.