4 Facts That Could Change How You Look at Crowdfunding

Crowdfunding — presenting an idea for a product to the internet community and offering rewards for helping fund its initial production — has spent the first five years of its life as a platform for people with good ideas to turn those ideas into a viable product. It’s how hobbyists and casual inventors have secured the funds to market some great ideas. However, it’s not uncommon for small businesses to ignore crowdfunding as a funding resource because of its “unprofessional” stigma.

Recently, though, big companies and big names have used crowdfunding platforms like Kickstarter and Indiegogo not to launch new businesses, but to build awareness for new products and expand on their existing existing portfolios. Here are four reasons to reconsider how you view crowdfunding.

1. There’s Real Money There

An infographic produced Clarity shows that the crowdfunding economy grew by $2.1 billion in 2013 alone, nearly doubling in size from the $2.7 billion in 2012. Overall, the amount of money invested to back crowdfunded projects tripled between 2011 and 2013, and that economy is still very young. There’s money — and big money — available. For example, last year the Kano portal computer raised $1.5 million and LeVar Burton’s reboot of Reading Rainbow brought in $5.4 million.

2. The Audience is There, Too

TechCrunch reports that on Kickstarter alone, 3.3 million different people backed one or more projects in 2014 for a total of $529 million in funding. If you gathered them all in one place, they would populate the third largest city in the United States. What had been the territory of tech enthusiasts and similar earlier adopters is now a go-to site across nearly all demographics.

3. Established Companies are Already There

Digital board game maker Days of Wonder uses Kickstarter as the ultimate form of market research. If a campaign funds, executives know it’s worth the resources to make a game a reality. In 2013, Paizo raised $1 million to make an online version of its popular Pathfinder role-playing game. Other industries in which established players have used crowdfunding in the last two years include household electronics, processed foods, health products, and semiconductors.

4. The Law is Catching Up

While Canada doesn’t have a national crowdfunding exemption, the exemptions are provincially based. There are two exemptions that businesses across Canada can follow. They are:

Start-up Crowdfunding Registration and Prospectus Exemptions

  • the head office of the crowdfunding organization must be located in the participating jurisdiction
  • they can only offer a maximum of two crowdfunded distributions per year
  • the amount raised is capped at a maximum of $250,000 in each distribution
  • investors (funders) are limited to investing up-to $1,500 per distribution
  • startups must prepare an offering document which includes basic information about the company, explains how the company will use the money raised, and states the minimum amount required to achieve these goals
  • investors/funders must understand and acknowledge the risk warnings presented tin the offering document

Crowdfunding Exemption

Affective in 2016, under this exemption businesses may raise a maximum of $1,500,000 per year.

The provinces of OntarioSaskatchewan, Manitoba, Quebec, New Brunswick, and Nova Scotia can rely on both Start-up Crowdfunding Registration and Prospectus Exemptions, and the Crowdfunding Exemption. But these exemptions cannot be relied on if the company is a reporting issuer or an investment fund.

The province of British Columbia can rely on the Start-up Crowdfunding Registration and Prospectus Exemptions.

Technology changes everything. During the early 2000s, social media and sharing sites democratized publication and sent massive waves through the music, print, and film industries. This decade, crowdfunding appears to be in a position to similarly disrupt how seed funding works by democratizing investment. How can you leverage this breakout trend to further your business goals?

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