Crowdfunding: Revolutionizing the investment landscape
In April 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into legislation, (potentially) allowing small startup companies to gain investment from private individuals through crowdfunding. This case study explores the viability of crowdfunding as a means of investment, its advantages and disadvantages, its utilization thus far, and its potential success going forward.
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In recent years, crowdfunding websites such as Kickstarter have seen a dramatic increase in activity as the trend has gained momentum. As a result, the number of crowdfunding platforms is on the rise, and such enterprises are beginning to see their business models change in accordance with the future direction of this burgeoning new industry.
Advantages of crowdfunding include the fact that it offers a much larger pool of investors from which startups and entrepreneurs are able to raise capital. Additionally, crowdfunding lessens the risk of bringing a new product to market, and enables startups to benefit from large-scale brand and product exposure.
Crowdfunding ventures, such as the Pebble Watch, which launched on Kickstarter, have shown the potential rewards of a successful crowdfunding campaign, although this example also serves to exemplify the drawbacks of such a means of raising capital.
Your key questions answered
- What are the potential implications of the JOBS Act?
- What are the advantages and disadvantages of crowdfunding initiatives?
- How successful have crowdfunding initiatives been thus far?
- What impact is crowdfunding likely to have on the traditional investment landscape?
THE CROWDFUNDING LANDSCAPE IS EVOLVING
Crowdfunding has exploded in recent years
The crowdfunding concept has been around for some time
The rise of online social media has created an Internet sharing culture
The number and size of crowdfunding portals has expanded dynamically recently
There are multiple options for platforms, founders, and investors
Crowdfunding now caters for a variety of applications
The evolving landscape has led to different revenue models for crowdfunding platforms
Funders stand to gain both rewards and equity
The JOBS Act has the potential to expand the application of crowdfunding in the US for startups
The JOBS Act exempts startup issuers looking to raise capital from the Securities Act of 1933
The JOBS Act has the potential to bring startup investment to the masses
The regulations will not be in place until 2013 at the earliest
CROWDFUNDING IN THEORY
There are multiple advantages of raising capital through crowdfunding
Crowdfunding reduces startups' reliance on venture capitalists and accredited investors
Reward-based crowdfunding lessens the risk of releasing a new product
Crowdfunding offers great product and brand exposure as a by-product
Crowdfunding does have its disadvantages
Crowdfunding success may turn to distress for startups and entrepreneurs
Crowdfunding could open investors, entrepreneurs, and platforms to theft and legal disputes
The JOBS Act and SEC regulation have limitations for equity crowdfunding
CROWDFUNDING IN ACTION
The Pebble Watch
The Pebble Watch is an innovative project that reacts to technological trends
Prior to the Kickstarter campaign, Eric Migicovsky had already raised capital through traditional means
The Pebble Watch became the most successful Kickstarter project in history
The Pebble Watch's success has led to setbacks and unforeseen problems
Crowdfunding for creative industries
Kickstarter is set to provide more funding to creative startups than traditional means
Videogame producers have also turned to crowdfunding
Crowdfunding has further enabled open-source development
Formlabs F1 3D printer
The F1 3D Printer aims to disrupt the growing 3D printing market
A focus on the mass-market translated into huge Kickstarter success for Formlabs
Patent disputes have led to litigation for both Formlabs and Kickstarter
Crowdfunding has arrived, but faces challenges going forward
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