CrowdFunding

[DigiNames]

Is anyone else following the developments of the crowdfunding movement in the US, or elsewhere for that matter?

I wanted to start a discussion about this topic, as I really believe it is going to be huge. If you are not familiar with crowdfunding, I will share the basics of what I know about it...

The general idea of crowdfunding is that someone looking for money for a project, invention, or business can get small contributions from many people to achieve their fund-raising goals. There have been websites around for several years now, such as Kickstarter.com and RocketHub.com, that have had good success using rewards-based models where contributors can receive some sort of non-monetary incentive to give money. These types of websites raised about $1.5 Billion last year.

In April congress passed the JOBS bill and it was signed into law by the president in April, and this will allow for crowdfunding to be used by companies to raise capital, and for the "crowd" to actually invest in businesses and take a share of ownership in the company through stock, which has not been allowed before. The details of how this will actually be implemented and the rules for how this will operate are now being worked out by the SEC, and they are expected to be completed around the start of 2013.

My opinion is that this is a very big deal. Many great business ideas fail because they are not able to get VC or Angel Investor funding at early stages. This will allow for these start ups to take their business to the crowd and get the funding that they need to take their business to the next level. It could also be used by mom-and-pop or local-interest businesses to raise funding, and for people that support them to take ownership in the enterprise. There is sure to be many, many other uses as this concept is developed.

There are many details to work out on how this will actually work, but there is already a new industry revving up to facilitate it. The law allows for registered "portals" to be the platforms for businesses to list their campaigns and for investors to find opportunities. There are many already being developed by forward thinkers in anticipation of this entirely new market. There are sure to be many other types of services needed to help start ups meet SEC regulations and required disclosures and take their ideas to the crowd, and to help investors understand and evaluate these investment opportunities.

Any thoughts, ideas, comments? Since this is a domain board, anyone have any good crowdfunding names registered? If nothing else, I just thought it is something that should be on everyone's radar since equity-based crowdfunding is very likely to be the next big thing.

 

[cbk]

Very interesting. I see the concept.

 

[Find A Date]

Great idea, will be interesting to see what the specific rules/regulations are once it is implemented.

 

[draggar]

You mean programs like KickStarter or something much later?

I think this has been around for a while now but under the name of "microlending" - maybe Crowd Funding is a new name so they can regulate it?

Edit: As for the corporate / stock aspect - doesn't that already exist as stocks (you buy the stocks from the company (or other investors)?

 

[Gerry]

Kickstarter is quite phenomenal.

Oddly enough, WIRED magazine just had a story in an issue delivered on Saturday on what happens when you are too successful in raising money, Drowning in Cash, or more aptly named Curse of Kickstarter. Here is a brief synopsis of 5 entities.

print 5000 hard covers of his web comic book. Goal $57,500 - Actual $1,254,120 curse: 110,000 orders exceeded printer's capacity wasting too much valuable time finding printer.

handmade silk screen prints; pledge extra and get a custom printed t-shirt. Goal $3000 - Actual $32,000 curse: has 950 prints to make and addition 600 hand printed custom t-shirts

make cheap 3-d printing kits. goal $25,000 - actual $830,827. curse: Immediately got hit with a $330,000 IRS bill.

smart watches that paired with iOS and Android phones; custom watch faces for pledges of $1,250. Goal $100,000 - Actual $10,266,845. curse: Initially had planned to make 1000 watches, not the orders totally 85,000.

a small limited run of sturdy, minimalist steel ink pens. Goal $2,500 - Actual $281,989. curse: planned on a limited run of 50 but got orders for 6,000, got a C&D from alleged copyright holder, countless trips overseas to find maker capable of meeting specs, continued legal battles.

 

[draggar]

Yikes! I've been thinking of using KickStarter to see if I can raise the funding for a complete overhaul of two of my sites.

 

[Gerry]

Yikes! I've been thinking of using KickStarter to see if I can raise the funding for a complete overhaul of two of my sites.

You'll typically need a good business plan and proposal that is pretty much an iron clad contract.

I never would have thought about the down side - being too successful in your money raising. Great piece in WIRED.

This concept is a few years old now and has been copied. Listening to NPR, there is a newly formed group of tech gurus in Silicon Valley area that pump some major capital into some start ups. If you belong to a local or regional "incubator" group you are likely to get better exposure, ideas, and help on projects.

 

[DigiNames]

You mean programs like KickStarter or something much later?

I think this has been around for a while now but under the name of "microlending" - maybe Crowd Funding is a new name so they can regulate it?

Edit: As for the corporate / stock aspect - doesn't that already exist as stocks (you buy the stocks from the company (or other investors)?

With microlending you are expected to pay it back as a loan. Equity crowdfunding will allow investors to receive ownership in the company through stock, so it isn't typically paid back.

The idea of purchasing stock in a company is not new, however the regulations restricted the way that you could approach investors and typically investors had to be "accredited" which means that they make over $200K per year or have a $1M net worth. Also, typically the stock was only sold in large chunks to a few investors. Crowdfunding sells small chunks of stock to a large number of investors. Crowdfunding will still have restrictions on required income amount and percentage of income that you are allowed to invest, but it will open up investment in startups to a much larger group of possible investors.

 

[Ulysses]

Just had a look at kickstarter and checked out uk funding!

This poor fellow has been over subscribed.

Backers 8,124
Pledged $314,843

Actual Goal $11,000 :uhoh:

Minidrive for Macbook

 

[Nathan86]

Just had a look at kickstarter and checked out uk funding!

This poor fellow has been over subscribed.

Backers 8,124
Pledged $314,843

Actual Goal $11,000 :uhoh:

Minidrive for Macbook

At least he won't need that minidrive anymore, how many macs will he get :smilewinkgrin:

 

[Gerry]

Wired has finally published on its internet site the article I referenced.

Here are the particulars and even images of the products (these were not in the print version):

http://www.wired.com/design/2012/07/st_kickstarter/?pid=682&viewall=true