If you’re familiar with the concept of crowdfunding, there’s a good chance that it first came across your radar as the way in which your nephew’s band raised money to record a new album, or your coworker’s daughter funded her recent documentary film. In exchange for donations to help get those projects off the ground, those artists likely used Kickstarter or Indiegogo to offer incentives, such as a free download of the finished project or tickets to a live concert.
What does the funding of those projects have to do with your small business or startup idea? Thanks to the recent JOBS Act (short for Jumpstart Our BusinessStartups), it could have everything to do with the way you raise capital in the future.
There we were, circled around a bachelor party campfire and drunk on keg beer, discussing the viability of using Kickstarter to fund a sex toy startup. My buddy Derk (he goes by Dangerous D at karaoke) had designed and handmade a compact speed controller for small vibrators (pic below). He was selling them at $75 a pop and apparently – I have yet to see or try one – they were getting rave reviews. Dangerous D’s Magic Box, he called it. Another friend and I were passionately trying to convince him to quit his job as a store manager and start a sex toy startup. We were positive, and a bit drunk, that all he needed was a successful Kickstarter campaign. The video would obviously be key.
It was then I knew that 2012 was the year of crowdfunding. It’s a household term now. This year saw the birth of the Pebble Smartwatch, iPhone-powered gTar, OUYA gaming system, and literally tens of thousands of arts, media, and design projects. And those were just on Kickstarter. Other projects turned to Indiegogo, RockThePost, and Quirky. Some startups like Lockitron even went at it alone, conducting their own crowdfunding campaign themselves.
Summary:Razoo has helped nearly one million officially registered nonprofit organizations to crowdfund. The site allows nonprofits to accept donations on their own website or on their Facebook page. Fundraising causes are organized into categories like animals, arts, cancer, disaster relief, environmental, and more. Charities can also post their fundraising events, including memorials and walkathons.
Best Feature: Razoo allows charities to create a profile for their cause, complete with video and photos. The site offers detailed examples of fundraising ideas for nonprofits to get started, and hosts “giving days,” which are 24-hour online fundraising competitions. The site also offers an iPhone app and donation widget for the organization’s website or Facebook page, which makes receiving and tracking donations a breeze. Tech-savvy individuals will like Razoo’s iPhone app, which allows users to receive notifications when someone donates, and includes an option to thank each donor individually.
What To Consider: You must be an officially recognized nonprofit to use this service. Razoo includes a list of approved charities, but if yours isn’t on the list, you can email your letter of determination from the IRS directly to Razoo so they can include it. You can learn more about this here.
Ideal User: Razoo is a good choice for nonprofits looking for an easy way to manage and encourage donations via web and social media.
Cost: The site charges a flat rate of 2.9% on all donations to cover credit card processing costs. Users can set up a fundraiser for any charity with no setup fees or monthly subscription fees.
Investment Bankers have traditionally been the gatekeepers of access to the capital markets. It is time for crowdfunding to play a greater role.
The caliber of underwriting firm is often an indication of the quality of the issuing company. The investment banks are paid well for that implicit endorsement, but that puts their reputations on the line. Their success is tied to the execution, after market performance and perception of the deals they complete –so they had better be selective and smart.
However, the banks are not infallible. The capital raising process has been inexorably altered by many different changes to the funding environment. I am not talking just about the botched Facebook IPO either. But the banks are pretty good.
The playing field between institutional investors and “mom and pop” is not level. The market is driven by inefficiencies and the average investor is generally on the wrong side of the spread. The differential comes down to knowledge. Full Story
RYAN CALDBECK was stumped. A director at a private equity firm, he was taking part in a panel discussion at a consumer goods conference last summer in New York when an entrepreneur raised his hand with a question: Where could a young company with just a few million dollars in sales go for money to grow?
Mr. Caldbeck and his peers on the panel fumbled for a response. The fact is, most private equity investors and venture capitalists won’t touch a consumer products company until it has surpassed $10 million in sales — anything else is too small to bother with.
The best advice the panel could offer was for the entrepreneur to tap his credit cards.
“The purpose of the panel was to help entrepreneurs raise money, but we had no answers,” Mr. Caldbeck remembers. “That’s when I knew that there is a big issue here.”
The Securities and Exchange Commission (SEC) chair, Mary Schapiro, recently announced her resignation from the position, but prior to doing so; put the brakes on removing the ban on general solicitation and advertising for issuers of certain offerings. While not directly related to crowdfunding, this provision of the JOBS Act is potentially one of the most important and necessary components to eventually provide the much awaited crowdfunding regulations.
The SEC was charged to form regulations by July 4th 2012 and clearly blew through that deadline. However, for startups that are looking to utilize crowdfunding to raise early stage capital, there are a few considerations that need to be kept in mind in light of these recent developments:
Don’t Give up Hope
Crowdfunding regulations were anticipated much earlier, but as with anything that requires changing of timeless regulations, it was bound to take longer than the optimists had estimated. The spirit of the legislation still holds to support startups and small business, and some of the members of the new guard at the SEC are believed to be strong supporters of crowdfunding. What appeared to be new delays may actually turn out to be a blessing in disguise by accelerating the pathway to implementation of equity crowdfunding.
The Space Coast likes to boast, often with good reason, about the area’s deep pool of entrepreneurs.
Some of them are trying hard to get the attention of investors through the Space Coast Energy Consortium’s “Space Coast Challenge,” a venture with the New York-based crowd-funding company RocketHub Inc.
Last month, the consortium selected 10 area entrepreneurs to participate in the fund raising challenge using RocketHub as the launch site. Two dropped out of consideration and now there are eight in the group.
In case you hadn’t heard, 2012 was the year that crowdfunding exploded onto the scene. Sure, Kickstarter, Indiegogo, Rockethub and others were around before this year, but the last 12 months saw the very concept permeate much deeper into the collective consciousness.
Numerous new platforms like WhenYouWish.com and niche platforms like Medstartr opened their doors, the JOBS Act in the US and other laws in Europe opened the door for equity crowdfunding, and donation-based campaigns began to collect seven-figure totals from the crowd.
To kick-off our year-end review of crowdfunding in 2012, our team profiled the five highest-grossing projects of the year. Lots of them have to do with gadgets and gaming, as you’ll see. I want to make it clear that these big money-makers are just a small slice of the overall crowdfunding pie, and we believe this top five reflects the fact that gamers and gadget early adopters have emerged as a kind of early “sweet spot” for donation-based crowdfunding. More about that in a massolution research report coming out soon.
Andrew Haldane said that he believed the rise of peer-to-peer lenders such as Zopa and Funding Circle – which match up companies needing money with investors – and crowdfunding, where small amounts are raised from a number of funders, will challenge major banks.
“The mono-banking culture we have had since the 1990s is on its way out,” Mr Haldane told The Independent.
“Instead, we are seeing a much more diverse eco-system emerging with the growth of new non-bank groups offering peer-to peer lending and crowdfunding which are operating directly with a wider public.”