Discussed, evangelized, criticized, beloved, obstacled, in the end, regulated: ladies and gentlemen please welcome crowdfunding!
Equity or reward based, funding by the crowd is already a reality and used by several startups to fund their earlier phases of growth.
Too difficult for them to either access to a bank debt or to get the support of business angels and venture capitalists! But not only an alternative; crowdfunding can also represent a pure choice since startuppurs decide it is better to run on their own, without indebting the company or selling a slice of their “venture”.
But the fight is already on.
On one hand, some have already objected that startuppers should not follow the sirens of the crowds, given the strategic support and the network provided by accredited investors, angels and VCs, resources that “normal” people cannot offer. In addition, there is the serious risk to have “too many chefs or no chefs in the kitchen”, as an angel investor recently said to me trying to explain the situation.
On the other hand, crowdfunding can become too risky for backers given that they don’t know almost anything but a pitch and some details about the company, the team and the proposed project.
Agreeable points, actually.
But given the above, there is no doubt, the crowd is a serious alternative to banks and accredited risk investors. Why? In a recent post (read here), Tanya Prive, co-founder of Rock The Post, summarized the top ten benefits of crowdfunding:
1) It provides access to capital.
2) It hedges risk.
3) It serves as a marketing tool.
4) It gives proof of concept.
5) It allows crowdsourcing of brainstorming.
6) It introduces prospective loyal customers.
7) It’s easier than traditional applications.
8) It’s free PR.
9) It provides the opportunity of pre-selling.
10) It is free!
Lawmakers across the planet should seriously consider them (or at least the main part of them) in order to regulate the phenomenon.
The facts then already show that this business finance “democratization” process is both massive and ineluctable: Kickstarter, Indiegogo, Fundable, RockThePost, CrowdCube, Symbid, etc., have already closed more than 100 pitches on their platforms allowing young companies to start their activity, to fund their projects, or to continue to grow their operations.