4 Facts That Could Change How You Look at Crowdfunding

by Jason Brick

2 min read

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

In October, the Texas State Securities Board voted to allow Texas companies to incorporate crowdfunding into their process for offering equity shares to the public. Though it was the first state to make such a move, the Federal Securities and Exchange Commission is considering similar rules on its own slower timetable. Crowdfunding is specifically discussed in the 2012 JOBS Act, but the details won’t be decided or announced until this coming October.

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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