Ever since the boom of Kickstarter, and the passing of the JOBS Act last April, crowdfunding has become part of the investment vernacular. What started out as a funding portal for art projects, band albums, small businesses, and budding entrepreneurs, has now grown into a mature investment opportunity for businesses of all sizes.
There are currently two different methods of crowdfunding available through a number of platforms. Donation (or some refer to it as reward) crowdfunding is the better-known version, allowing project creators to accept monetary contributions in exchange for an incentive. This process can include small businesses, entrepreneurs, fund my life campaigns, and creative projects, all depending on which platform they are hosted on.
Investment crowdfunding is the opposite method, allowing companies to sell a percentage of ownership in their company to accredited investors (future regulations established by the Securities and Exchange Commission will allow non-accredited individuals to invest in private ventures in the near future). This method is reserved for incorporated companies that are looking to raise anywhere from $100,000-$5,000,000.
Project creators or entrepreneurs create donation crowdfunding campaigns for a multitude of reasons. While some of these businesses are looking for an injection of funds to keep their brand alive, there are many well-established companies who are utilizing this process for its marketing prowess.
Villy Custom Bicycles, a flourishing bespoke bike company funded on ABC’s Shark Tank by Mark Cuban and Barbara Corcoran, chose to run a campaign on RockThePost, the crowdfunding platform I co-founded. Not looking to raise funds, Villy Custom was more interested in testing the market for their upcoming line of glow in the dark bikes entitled “Reflecta-Glow.” After raising over $10,000 from a number of different contributors, they finally got the clear answer they had come for. People were interested in their product, and were willing to pay in advance.