In 2014 (year 1 of crowdfunding from accredited investors under the JOBS Act Title II) there were 534 successful campaigns. Most campaigns were in Seed and Series A rounds with rounds from $500,000 to $3 million. But there were 2,824 that did not get funded. However, with an average of $407,685 per company, crowdfunding under Title II was a true success. California lead in both the number of companies and the capital raised. New York, Florida, Texas, and Illinois followed suit. Come on, Washington!
What about Title III equity crowdfunding from non-accredited investors? Though not yet effective, startups have raised millions through RB sites like Kickstarter and Indiegogo from non-accredited investors. Though not EC, a large number of startups were able to scale through RB campaigns that resembled EC. One such success was the campaign for JIBO, the world’s first family robot. The funding goal for JIBO was $100K for getting a prototype to market. Instead, the campaign returned $2.1 million, from 5,552 people in 2 months. JIBO then went on to raise $25.3M in Series A Funding. JIBO and other stories like Oculus Rift, that raised over $2 million from 9,500 backers on Kickstarter that got sold to Facebook for for $2 Billion shows the vast potential of the Title III campaigns. With the explosive growth in 2014, Crowdfunding is now the go-to way for startups to raise funding.
So, what are some notable features of a successful campaign?
|Why a lot of home-work before launch (both RB and EC)?||It takes a lot of work rather than creating a fundraising page and watching for hundreds of people to magically stumble upon your page and donate. The only reason that some fundraiser raise $200K in a week and the others get $5 is that there was a pre-existing support base. So, here is some recommended homework:
|What are the benefits of a well- run RB campaign||Early market validation, customer data of the early adopters, mitigate production risks by knowing the buyers ahead.|
|What are the benefits of a successful EC campaign?||
|What are some success strategies for EC?||
|Why can’t I do it all by myself?||DIY is not recommended; needs a lot of education and help of professionals and supporters|
|What are some risks to consider?||Might involve disclosing inventions and ideas very early; public disclosures might cause losing IP; poaching or copying by competitors; can still be expensive for startups|
|What legal help will I need?||
What are the benefits of EC from a Public Policy Angle?
With democratized access to funds, there are some serious public policy benefits of EC. It’s what compelled me to write this blog series in the first place. In particular, I find 3 key benefits:
- Equity crowdfunding helps the founder be less dependent on creating and maintaining a large personal network of active investors which can be cost-prohibitive for nascent startups with limited resources which must be used for developing the product or service they offer. Also, for those founding teams living away from the conventional investor hubs, online access connects them to a large and diverse online network without the disadvantages of being away from the hubs.
- With a more open and collaborative method of funding online, there will be more opportunities for women and minority founded startups. Why not a good-old-girls network?
- Increased participation by female investors due to online access to companies that they wouldn’t have had access otherwise in person via angel clubs and VC funds will have the potential to rapidly diversify the investor base.
Equity crowdfunding, its size and its potential
The current annual global VC investments are about $86 Billion; the World Bank estimates the annual total market potential of the crowdfunding industry to reach $300 Billion by 2025. If you are not fascinated by these statistics, I’m not sure who would be. I know for sure, I am!