Rory Eakin of CircleUp; recorded in December 2012
Since the JOBS Act was signed into law in April 2012, crowdfunding campaigns and platforms have been growing like wildflowers. There are many choices for businesses, entrepreneurs and marketing consultants but also some equity-based crowdfunding uncertainties with pending Securities and Exchange Commission rules.
I recently sat down in San Francisco with Rory Eakin, co-founder at CircleUp, to talk about crowdfunding models, funding strategies, and congressional developments on the horizon with the S.E.C. working on new rules that will likely change fundraising and investing forever.
Currently, there are three types of crowdfunding models that are intended to help raise capital for businesses and create investment opportunities for the general public. In fact, some businesses apply more than one approach in the course of doing business over the long term.
Here’s a brief definition of each and some example companies in the table below. Not all crowdfunding platforms are created equal and that’s a good thing for campaign teams:
Contribution (Donation): This is non-equity funding raised online where contributors receive non-monetary perks for helping to fund and grow businesses. Typically good for startups and seed capital; many entrepreneurs use this approach to finalize, test and launch new consumer products.
Debt: This is similar to a loan where supporters are repaid with interest on an established schedule with specific terms. Supporters do not receive ownership in the business and this is best for businesses with solid revenues and assets.
Equity: Established, small businesses with growth data offer equity shares in return for capital investment; supporters become shareholders. This model has limited activity now with accredited investors but new S.E.C. rules are anticipated to open up more investment opportunities and protections for the general public.
* Both contribution and equity options in the works.
Crowdfunding Numbers, Stories and Concerns
Kickstarter recently published some compelling data and stories that illustrate the power of crowdfunding. No doubt, crowdfunding is changing lives, helping to start new businesses and create more jobs.
In 2012 on Kickstarter’s platform alone – 2,241,475 people pledged a total of $319,786,629.00 to successfully fund 18,109 projects. More than $300 million dollars worldwide was contributed/donated for a wide range of initiatives and 17 projects each raised more than $1 million.
The Internet certainly has a history of democratizing things. Fundraising and investing are no exceptions. Crowdfunding platform leaders and technologists are passionately innovating to help businesses and people achieve success that comes from raising money in an environment where traditional sources of cash — like banks and family members — are no longer as accessible.
But the crowdfunding industry also presents opportunities for fraud if protections are not fortified by the S.E.C. New rules were supposed to take effect by the end of 2012 as part of the JOBS Act (Jump-Start Our Business Start-Ups), signed by President Obama last April, but delays like this are common when big, congressional changes are being decided.
Patience is a virtue but there’s no need for businesses and entrepreneurs to sit idle. There are many crowdfunding platform options available now, and resources to inspire campaign teams.
Your Crowdfunding Success in 2013
Crowdfunding best practices are all over the web. Quickly find related details by clicking on the links in the table above to review published resources from the listed crowdfunding sites.
Search Engine Watch has been covering this topic for a while and will continue to write about crowdfunding teams, best practices, case studies and trends. Regardless of the strategy you apply, consider these helpful articles before getting started in 2013.