Four years ago, the concept of crowdfunding moved into the mainstream when a website called Kickstarter came onto the scene. It wasn’t the first website of its kind, but before long, it became the largest. Today, according to an article on Wired.com, since Kickstarter began, it has been responsible for 38,000 successful fundings representing $141 million in pledges from interested persons. Although these figures are impressive, they could stand to be even more so in the months to come once the Securities and Exchange Commission finalizes the Jumpstart Our Business Startups Act, also known as the JOBS Act.
Details About the JOBS Act
On April 5, 2012, President Barack Obama signed the Act into law, and according to coverage on Entrepreneur.com, it’s expected that by this June, there will no longer be a ban on startups publicly seeking investors. Another phase of the Act will make it legal for startups to raise money online with help from non-accredited investors and offer them equity. Once the Act is fully implemented, it will permit general solicitation for the first time since being outlawed in 1934.
Equity Crowdfunding Donations Not Yet Sizable
A recent report from Massolution found that around the world, individual donors pledged $2.7 billion to over one million crowdfunding campaigns in 2012. Also, that figure represents an 81% increase from the previous year. Once the JOBS Act is ironed out, anyone will be able to use up to 5% of their annual income for crowdfunding ventures, and become genuine investors for a project. For now though, the Massolution study found that only 4% of crowdfunding donations went towards equity investments. Besides the delay of the JOBS Act Implementation, that’s likely because the crowdfunding industry remains mostly driven by rewards-based incentives ranging from signed art, to dinners with musicians and even walk-on film roles.
Possible Intellectual Property Disputes Cause a Shift
In September of last year, Kickstarter got attention after people heard about some projects that were ultimately taken down, reportedly because of possible intellectual property disputes. Following that, the website announced policy changes which did not allow simulations or other renderings within pitch videos for hardware projects. Some analysts felt that because crowdfunding websites like Kickstarter are drawing such high levels of attention, there’s nothing to stop potential copycats from going to the site in seek of inspiration. Since then, Kickstarter has moved slightly away from projects related to gadgets, and towards those related to the realms of music and design.
Crowdfunding Gets Charitable
A former pastor named Shaun King recently launched HopeMob, a crowdfunding website of a slightly different sort. It focuses on raising money for charity, and King believes that’s crucial. In an article in the Upstart Business Journal, King talked about how crowdfunding campaigns are “competing for each other’s stories,” but on King’s website, campaigns are driven by “the ills of society”. Unlike the majority of other crowdfunding platforms, the website doesn’t take a cut of any funds raised, because it’s a nonprofit entity. To get his idea off the ground, King combined social media skills with well-written stories about people in need. Although he turned to Kickstarter to raise the approximately $125,000 that helped the site become functional, King now relies on private donations.
From the above examples, it’s easy to see that crowdfunding is becoming an increasingly popular way for people to raise money for all types of causes. Moving forward, the landscape seems set to become even more exciting once the JOBS Act becomes fully implemented and people can depend on crowdfunding to readily become investors instead of just receiving rewards.
Writer Jena Daniels is a full-time freelance writer. Do you want to become part of new business strategies? You may want to check out the mba offered at Pepperdine University.