Crowdfunding – Filling the Seed Funding Vacuum

While the future of equity crowdfunding remains in SEC limbo, non-equity crowdfunding appears to be thriving. Since its founding in 2009 Kickstarter, the original online source funding website, has hosted over 47,000 projects with almost half of these being successfully funded. Combine this with the other websites that have emerged to follow Kickstarter’s lead, such as Indiegogo, crowdfunding has grown to be a multi-billion dollar business. Although initially intended to help artists finance “creative” projects which include everything from indie films to homemade crafts (a nod to the maker movement), crowdfunding sites are increasingly being used to provide seed funding for technology startups. While this approach doesn’t work for a lot of businesses it lends itself well to consumer products. Since “contributors” cannot receive equity in the company they are instead given discount pricing on the product once development is completed and it goes into production and subsequent distribution. Recent examples include Kickerstarter project: myIDkey and Indiegogo projects: Canary, iDoorCam and Vibrese. For these companies, crowdfunding has helped fill the void for seed funding left by traditional financing sources as they retreat to lower risk rounds. This is just one example of how the startup funding landscape continues to evolve as a result of fundamental changes in the way investors, both individuals and institutions, view early stage financing opportunities.

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