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Equity Crowdfunding

To the disappointment of many people, equity crowdfunding for businesses did not become a reality in 2012 because of the slow pace of regulation formulation by the SEC, which is required to write rules governing equity crowdfunding. The SEC has never been a proponent of crowdfunding so this turn of events is not surprising. Once the SEC does issues the rules, there is a 90-day comment period so it is highly unlikely that equity crowdfunding in the U.S. will occur before 2014. Equity crowdfunding is happening in Europe and the UK in particular has a healthy equity crowdfunding ecosystem. Those interested in seeing equity crowdfunding happen in the U.S. are now pressuring the SEC to issue the necessary regulations.

All the equity crowdfunding platforms that appeared in 2012 in anticipation of actually being able to launch campaigns, find themselves in a holding pattern. Some of them have teamed up with angel investors and licensed broker dealers who attract “accredited” investors (individuals with a net worth of at least $1 million, not including the value of a primary residence, or have made at least $200K each year for the past two years). The new law allows Individuals with an income of less than $100,000 per year to invest the greater of $2,000 or five percent of their income. Individuals with an income of more than $100,000 can invest up to ten percent of income.

Rewards-based Crowdfunding

The donation model of crowdfunding did well in 2012, with many new platforms arriving on the scene. The two biggest players, Kickstarter and IndieGoGo, experienced excellent growth, with the number of projects launching increasing 43 percent on Kickstarter between June 2012 and February 2013 according the Next Market Insights. According to Crowdsourcing.org, in 2012 Kickstarter attracted 2,241,475 people pledging a total of $319.8 million to all campaigns. That’s almost $607 a minute, a 221 percent increase over 2011. This resulted in 18,109 successfully funded projects, which cumulatively collected $274.4 million. The two big players will continue to dominate the category throughout 2013.

While IndieGoGo allows any type of project on its platform, the creative arts, games, and charitable causes dominate successfully funded projects. And while some technology projects have done spectacularly well on Kickstarter — the Pebble watch campaign asked for $100,000 and received over $10 million — most successful projects are in games and the creative arts.  Kickstarter will likely be doing some more tweaking of its strategy as it purports to allow only projects, not businesses even though many projects do turn into businesses.

 

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