As an entrepreneur, sometimes you can hardly find time for lunch, never mind gathering funds to put your Big Idea into production. Skeptics of crowdfunding may turn their noses up at sites such as GoFundMe, Kickstarter, or Indiegogo. But the crowdfunding trend is catching on. Those who need help raising money for their startup business may find it truly worthwhile.
How Did Crowdfunding Start?
In 2013, the Securities and Exchange Commission lifted the ban on general solicitation. The gates opened for entrepreneurs to advertise publicly for investors. Platforms such as Fundable, Kickstarter, SelfStarter, and the like took off as ways to find investors. You could request funding for your idea, or even for yourself. Platforms like Pave and Upstart don’t even require an idea or business plan. Rather, they allow entrepreneurs to sell equity in themselves in exchange for a small cut in their future income.
Just How Big Is Crowdfunding?
Entrepreneur reports that over the past 5 years, crowdfunding has grown 1,000% and is set to grow 92% in 2014. Check out their comprehensive infographic here. Current legislation in the SEC would permit any US citizen over 18 to invest in private companies.
These trends are outstanding for startups, as well as for the job market. The data suggest that, on average, every $37,702 that is invested creates one job. Every invested $1 returns $6.36. According to estimates from Fundable, by the end of 2014, crowdfunding will add at least 270,000 jobs and inject more than $65 billion dollars into the global economy.
Now, those numbers may surprise you. Empact, an entrepreneur advocate, makes even more impressive projections. They estimate that, by 2020, crowdfunding will generate $3.2 trillion in economic revenue per year, and create more than 2 million new jobs.
What Makes a Successful Crowdfunding Campaign?
Dave Giorouad, CEO of Upstart reports, “since Upstart’s launch last November, backers have made $2.1 million in offers to 160 people. At least 50 percent are entrepreneurs specifically trying to get a business off the ground.” He adds, “A quarter of the 225 active investors have backed more than one upstart.”
The most successful campaigns last an average of nine weeks, with an average goal of around $7,000. The time frame and the goal are important; with sites like Kickstarter, if you fail to meet your goal, you do not get any of the investments. On average, more men are willing to take a risk on a startup company than women. People aged 24-35 are more likely than those over 45 to participate in crowdfunding campaigns.
It is important to note that crowdfunding is not fool proof and with the vast growth over the past few years, there are a lot of new companies attempting to make it big. Therefore, before you venture into crowdfunding, do your research to determine which route is the best for you. Learn to make your campaign a solid choice for investors, so that you will reach your goals. Good luck!
IMAGE: CC0 / Public Domain