One of the biggest challenges for start-ups and entrepreneurs continues to be securing funding. Although final regulations have yet to be set by the SEC for Investment Crowdfunding , it’s hard not to get excited about the potential in capital for business and investment options to individuals that the JOBS Act will make possible.
All one has to do is take a look at what is happening globally in crowdfunding. The dollars raised on crowdfunding platforms increased by 81% in 2012 totaling $2.66 billion according to a recent Massolution survey. Of the crowdfunding total, equity crowdfunding portals raised $116 million globally. When the SEC finalizes the rules for the JOBS Act, the growth of Investment Crowdfunding is expected to dramatically increase. Some predict global crowdfunding will double in annual funding raised in 2013 to reach over $5 billion dollars.
When taking a look at Investment Crowdfunding, one must look at how campaigns differ from other forms of crowdfunding. The amount raised per Investment Crowdfunding campaign is far greater than with perk-based crowdfunding. According to GigaOM Pro, in 2011 the average perk campaign raised $4,000 where the average investment-based campaign brought in $112,000.
In perk-based crowdfunding individuals donate money to campaigns for a yet-developed product and receive a discount or perk in exchange for their contribution. In essence, it is similar to a “pre-purchase” model where individuals buy products in advance of development. Instead of providing a product discount or perk, Investment Crowdfunding offers investments: where individuals may earn a financial return in exchange for their contributions. Investment Crowdfunding makes it possible for entrepreneurs to establish long-term relationships with investors that continue long after campaigns have ended.