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?