Thoughts about Crowdfunding for Startups (2/4)

The concept of crowdfunding was really successful for non-profits, charities, donations, and even for political campaigns. Barack Obama raised $500m in 2008 online from the crowd with an average donation of $80. Great examples of platforms that connect organizations with donators include Spot.Us, FirstGiving, and KickStarter. For social entrepreneurship crowdfunding platforms, there is UnreasonableInstitute.

It was also successful as a short-term strategy in the fashion, music, and film industries.IAmVerity raised $80,000 from 2,000 fans in 25 countries to release an album and donate to women’s charities in South Africa. There are also platforms that connect filmmakers, artists and bands with their fans to finance their new films or albums. Examples include:Indiegogo, and SellAband.

A very interesting example of a technology non-profit organization that has raised funds from the crowd is Blender.org in Amsterdam. However, only few for-profit technology companies were successful in raising capital from the public without being traded in the public stock market.

One great example is: TrampoLineSystems in London. But this company raised its later investment round from the people, i.e., it was not yet starting. Trampoline was a VC backed company, but couldn’t raise the second round from VCs so they decided to go crowdfunding. They were also forced by law to only allow accredited investors, not anyone, which limited their options.

Being a long term investor is not like being a supporting fan or donating chartist. What about sharing profits or dividends? What about external auditing? How long are you willing to wait to exit? How can you exit? Where can you sell the stock? There is no stock market for this! The company is still private, so it does not publish its financial data! Analysts can’t view and analyze the stock price history and give recommendations to other crowd investors to buy or sell! Even if the data were shared among shareholders, they might not know how to analyze business plans or financial statements to decide to invest or not.

Though, in the next post, I provide examples of successful private stock market attempts who have answered the above questions!

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