The much-anticipated equity crowdfunding model will be up and running in the United States in 2013. While it hasn’t received as much press of late, the current crowdfunding model will remain strong now and throughout. In this second post on the topic, we explore how both models will interact and which types of campaigns will likely utilize each model.
At Launcht, we envision a three-part through line from crowdfunding through to an angel round that would look like this:
- Donation/rewards/pre-sale crowdfunding to gauge market interest
- An equity crowdfunding campaign to convert evangelists into investors
- An online Reg. D offering to accredited investors through a platform like Mission Markets.
Visualizing this through line reveals how both the current form of crowdfunding and equity crowdfunding will provide wider access to startups and further democratize entrepreneurship.
Looking at each of these steps individually, let’s start with the industries and projects that will continue to flourish under the current crowdfunding model without transitioning to equity crowdfunding. From singers to dessert engineers, artists will likely remain exclusively in the benefits crowdfunding sphere. This also goes for non-profits, which couldn’t sell equity. Crowdfunding for small, short-term projects will also stay in the donation/rewards model. These kinds of campaigns are varied and numerous; as a result, traffic to them will not abate any time soon. Success stories like Amanda Palmer’s and Karen Klein’s will continue to amaze and inspire the crowd.
For businesses looking to eventually sell equity, the current form of crowdfunding will likely act as the first stage of a through line to full business development. We have already seen companies run campaigns to acquire seed funding for a first batch of their product, something on the order of $4,000-10,000 with the potential for exceptional success stories like the Pebble Smartwatch, which the blog discusses here.
After gauging market demand and acquiring capital for their proof of concept, startups can move on to launch an equity crowdfunding campaign. This is the second stage in the through line.