Professional Investors Qualms About Crowdfunding

Sunday, May 22, 2016

With the advent and growth of crowdfunding over the past few years, many entrepreneurs have predicted the demise of those demanding angel investment groups and venture capital organizations. In fact, the latest figures show that crowdfunding has already grown to over $30 billion in 2015, exceeding the amounts contributed by either angel groups or VCs alone.

Early crowdfunding successes have been undeniable. In 2015, the new Kickstarter Pebble smartwatch raised $20.3 million, smashing the old Kickstarter record of $13.3 million held by the Coolest Cooler. This is the cooler that features an ice-blender, Bluetooth speakers and a USB charger. Over on IndieGoGo, Flow Hive raced past their goal of $70,000 to raise $12.2 million.

But don’t be misled – these are just the cream of the crop. According to statistics, between 69 and 89 percent of projects, depending on the platform, do not meet their monetary goal and have to return anything they do collect. That’s not as high as the failure rate with professional investors, but it should convince entrepreneurs that crowdfunding has been no panacea for funding.

Granted, all the experience so far has been without the most anticipated feature of the JOBS Act – Equity Crowdfunding (Title III), effective a few days ago with 685 pages of rules. At least ten online portals are already gearing up to help regular people buy startup equity, without abiding by accredited investor rules. Anticipation is high, but it’s obviously too early to see any results.

Source: Forbes (link opens in a new window)