But my hopeful prediction is that equity crowdfunding will make investing less risky and less complex for most people, improve the investing experience for both Wall Street and Main Street and spur economic growth. Its easy to think of equity crowdfunding as a way for Joe or Jane Investor to get in on the next big tech startup. But we believe it could also unleash a different segment of our economy: the long tail of local small businesses and franchises that are too small for pro investors to spend time on. We see indications of this on Indiegogo already. The amount of money pledged to small business campaigns on our perks-based platform has risen by more than 200% over the past year, and has helped restaurants, boutiques, massage http://online.wsj.com/news/articles/SB10001424052702303332904579226233348698064 parlors, theaters, gyms, bookstores, hobby businesses, and more. (Campaignersare charged a 4% fee of the total amount raised if the target is met, and 9% of the total amount if the target is not met. ) Read what other mentors say about crowdfunding. Even the smartest and most hooked-in investment professionals strike out with most of the startups in their portfolios.But capitalizing a public-facing business through crowdfunding has the potential to lower investment risk for both issuer and investor because crowd patronage offers market validation and loyalty advantages that traditional funding mechanisms cant provide.
Why Equity Crowdfunding Isn’t a Threat to Venture Capital
So, why might someone choose equity crowdfunding over more traditional crowdfunding options? I think the key here is you spoke to people who had gotten their money from donations [smiles]. If you talked to a bunch of guys whose Kickstarters have failed, you’d get a different answer. The “vibe” only works if you have the credentials or social marketing power to get funded elsewhere. Other developers (the vast majority) will not get funded this way and going the equity route seems pretty attractive versus dealing with VC’s or publishers who will take control of their project and usually own the IP. There is also a fair portion of the population who would never just give their money away, especially knowing that there is a significant chance that the project will never see the light of day. Those people might be more interested in investing in a game project that they are passionate about, with a business plan they can understand and believe in, as opposed to say E-Trade or a mutual fund. These people will generally be putting more money in than the fans who just want the game. It’s just a different audience for your crowdfunding effort.
Q&A: Equity crowdfunding – is it right for your game?
If additional fundraising is in the cards, having one or two large investors will prove much less cumbersome than having numerous small ones. If they aren’t doing well, managing the dissatisfaction of one investor will be easier than dealing with numerous upset financiers. Venture capitalists give entrepreneurs more than just money. Many of them understand how to build startups more so than the typical investor providing funding through an online portal. Many VCs can provide introductions to potential suppliers and customers and give assistance rounding out a management team. Many VCs have connections to companies that can acquire startups and ties to the investment bankers that take them public. Those connections are worth something to many entrepreneurs seeking to exit from investments in their own new companies. Venture capitalists aren’t likely to get locked out of deal flow once equity crowdfunding comes on line.
Equity Crowdfunding Has Arrived: 5 Things to Know About the Future of Raising Money Online
Fraud shouldnt be an issue. Like any investment opportunity, the introduction of equity crowdfunding will no doubt attract some dishonest folks. But both veterans of crowdfunding and film finance believe it will be hard for anyone to effectively propagate fraud on a mass scale. The hope is it will be easier for people to get information, easier for people to say, Hey dont do business with these guys, Roban said. You cant go to a restaurant without going on Yelp and seeing the last four people that went there say its terrible. Danae Ringelmann, co-founder and chief customer officer of Indiegogo, told TheWrap that her company has had no problems managing fraud in the past, and doesnt expect the introduction of equity to change that providing Indiegogo decides to adopt the equity crowdfunding model. Indiegogo has been managing that exact risk for the last six or seven years now, and weve built trust and safety protocols and algorithms on our backend to address that risk exactly, Ringelmann said. So with equity crowdfunding, well just continue when the regulations are final. 3. Perk-based crowdfunding isnt going anywhere.