Crowdfunding alone may not generate enough money for startups at first, but many consumers are interested in eventually getting on board as micro-capitalists.
That's the word from Funding Launchpad, which just released a new survey of 227 consumers that finds remarkably high levels of awareness and interest in the crowdfunding model for business startups. A majority, 55%, were are aware of the concept of crowdfunding, and at least half of the aware group had already contributed to a crowdfunding campaign (46%).
Last week, we reported how the the US House and Senate had approved the so-called The JOBS (Jumpstart Our Business Startups) Act, which clears the way to “crowdfunding” as a method to raise business capital. If signed by the President, the act enables startups, small businesses, and even smaller units of large companies to engage in crowdfunding to secure financial support for new ideas from across social networks.
[UPDATE 4/5/2012: President Obama has signed the JOBS Act into law.]
The Funding Launchpad survey predicts slow uptake once business crowdfunding is legalized, and likely, there won't be enough funds streaming in to fully support startups using this financing route.
Once things are established, however, the study finds, a majority of consumers, 54%, expect to invest amounts less than $1,000 in at least two to four projects per year.
There may be some bias in the study, as it may have picked consumer segments already tilted in the direction of social media-based initiatives -- participants were recruited primarily via Funding Launchpad’s founders’ social networks, Internet message boards, word-of-mouth, and other digital recruitment tools. Nevertheless, this group is likely to be setting the patterns for new approaches to solving problems.
The study provides advice to startups going the crowdfunding route as well -- campaigns that offer both rational and emotional incentives to invest are most likely to succeed. Accordingly, expected return on investment was the biggest factor towards potential investment (68%). Other financial-related metrics such as management team (43%) and payback period (41%) also scored in the top half of factors. However, emotional reasons, namely the connection with a company founder or employee (51%), or to a company’s mission (50%), were also significant.
At this point, supporting small business, investor rewards (critical in donation-based crowdfunding), using investment crowdfunding for portfolio diversification, investing local, and the company’s logo were viewed as less significant factors in the decision to invest.
It its survey report, Funding Launchpad provides definitions of the four key variations of crowdfunding:
- Donations-based crowdfunding: "Contributors donate towards a creative, community, or business-oriented project in exchange for tangible, non-monetary rewards such as an e-card, T-shirt, pre-released CD, or the finished product.6 Donation-based crowdfunding platforms include Kickstarter and IndieGoGo."
- Microfinance: "Contributors align to provide financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. Kiva.org is a prominent microfinance platform."
- Peer-to-peer (or social) lending: "A method of debt financing that enables individuals to borrow or lend money without the use of an official financial institution as an intermediary. Examples of lending platforms include LendingCircle and Prosper."
- Investment: "Contributors earn securities – equity, debt, or revenue sharing – in exchange for their contributions. Investment crowdfunding is generally considered illegal in the US9 but is an emerging option in the UK (Crowdcube), the Netherlands (Symbid), Australia (ASSOB), and elsewhere."
This post was originally published on Smartplanet.com