Why This Is Important
Launching any business comes with endless, yet manageable, risk, and this only expands when seeking outside funding. For venture funding, regulations put some constraints on who can contribute capital, which in turn turned away less experienced people from spending their money on poor investments. However, technology once again bested regulations, and in the past decade or so crowdfunding has knocked down barriers. Thanks to crowdfunding, launching products and companies is seemingly easier due to getting small contributions from hundreds if not thousands of backers rather than large amounts of money from a handful of VCs. The side effect of course is that backers were initially not fully informed, rules may not have been in places to ensure products would ever be completed, and backers could not truly invest due to regulations at the time. This year the SEC is changing the game, and now anyone, regardless of income, can invest up the greater of $2,000 or up to 5 percent of their income in a crowdfunding issuer per year. This is then doubled to 10 percent for those making $100,000 in annual income or net worth each year. It’s of course much more complicated than this, and places constraints on companies as well, but the floodgates for investing have been opened. Though similar in nature, equity crowdfunding and what most people refer to as crowdfunding may have very different outcomes and constructions, the risks at play may run in parallel for both would be brands and backers/investors.
via TheCrowdDataCenter Even now, the success rate of crowdfunding campaigns is low. For Kickstarter, 30.4% of campaigns are successfully funded, and on Indiegogo 11.9% funded (partially due to there being an opportunity to receive funds without achieving the set goal). And these are only for campaigns that result in some form of reward, and don’t count the amount of campaigns that successfully fulfill them.
