Crowdfunding Platforms Expand Financing to Regions That Suffer From Venture Capital Drought

By Anum Yoon, Crowdfund Beat Media Guest post,

Venture capitalists tend to back entrepreneurial firms that reflect their own ideas and match their social and educational experiences. This type of financing has resulted in a concentrated amount of funds for business endeavors in specific locales. Venture capitalists are typically wealthy investors, investment banks and other financial institutions with similar interests.

Silicon Valley and Boston benefit greatly from venture capitalism, while struggling entrepreneurial startups across the country are suffering from a venture capital drought.

However, the industry is changing with the expansion of crowdfunding platforms, such as Kickstarter, helping to level the playing field. A recent study from the University of California at Berkeley states that crowdfunding financing is now accessible outside of the traditional startup and technological landscape, with even the restaurant industry jumping into the crowdfunding action.

Crowdfunding Platform Expansion Leads to Nationwide Innovation

Crowdfunding appeals to entrepreneurs and investors looking for a different tribe. Since many venture capitalists (VCs) finance people and ideas similar to their own, women and minority entrepreneurs can benefit greatly from crowdfunding expansion outside of the normal VC region.

The study from UC Berkeley identified specific regions where the majority of financing from VCs are concentrated. The study analyzed data from 55,0005 Kickstarter campaigns and 17,493 venture capital investments that were similar in activities.

The researchers mapped the successful campaigns and financing from 2009 to 2015. What the researchers found was that the Kickstarter campaigns originated from all across the country and from areas not typically financed through venture capitalism. This includes the cities of Chicago, Los Angeles and Seattle.

Venture capitalism was responsible for the financing of entrepreneurial firms in highly concentrated areas. As much as 50 percent of all VC financing concentrates in only four counties within Silicon Valley and Boston.

The study took into account the relative intensity of the crowdfunding platform and venture capital funding in each region. Using this formula, the researchers could account for the differences in population and other factors that might skew the results.

The researchers found that areas with Kickstarter investments were located away from venture capitalist funding. For example, in the Bay area, VC funding is primarily focused in San Francisco and the Peninsula, but Kickstarter funding concentrates in Marin and Napa counties.

According to the researchers, the results could show an inequality in entrepreneurial funding in regions. In areas with Kickstarter technology campaigns, the study found that venture capitalist funding increased as VCs find these new ideas attractive.

Other Crowdfunding Platforms Expanding

The six-year study from UC Berkeley focused on Kickstarter as the crowdfunding platform, but others are expanding their reach across the country in hopes of reviving the entrepreneurial legacy while stimulating the economy and supporting charities.

GoFundMe recently acquired CrowdRise to expand fundraising initiatives for charities. GoFundMe processed the transactions for CrowdRise during 2016, and the platform raised $100 million each month and grew 300 percent year-over-year. The acquisition increases the opportunities for social fundraising and charity fundraising.

Other crowdfunding platforms that small businesses and entrepreneurs are using include Indiegogo, Fundable and RocketHub. Indiegogo launched in 2008 and announced in 2016 that it has added equity crowdfunding to open the door for small investors.

Fundable is an Ohio-based crowdfunding platform that attracts accredited investors for entrepreneurial businesses, such as InstaHealthy USA.

RocketHub offers traditional donation fundraising as well as equity-based crowdfunding through the ELEQUITY Funding platform and Bankroll Ventures.

Now entrepreneurial startups in smaller cities and rural areas have a chance to develop and share their ideas with crowdfunding platforms. Not long ago it was determined that U.S. entrepreneurship was at a 40-year low, but this may soon change.

The American entrepreneurial spirit still exists, it just needs a little financial help from its tribe.

 

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