Crowdfunding’s first report card – good enough for the fridge?

Head of the class

Think about it: There are two primary reasons that you should care about crowdfunding: Either (A) because you’re considering tapping into this funding source or (B) you’re seeking information on general business trends (of which this is one). Whatever your motivation, you’d do well to check out a brief overview on how crowdfunding has done since it’s inception.

A good student

It’s been about three months since Title III of the JOBS Act legalized true equity crowdfunding where startups can now raise up to $1 million in capital online to jump-start and grow their company. If you’re a startup or even an established company and you’re looking to raise funds through crowdfunding, Regulation CF’s first “report card” shows some very encouraging grades for entrepreneurs everywhere.

The JOBS Act was signed into law on April 5, 2012 although it took the Securities and Exchange Commission (SEC) several weeks to put out the rules that allowed this law to finally go into effect, finally becoming law on May 19, 2016. Three months later, reports regarding early results look promising.

Despite limitations in the law (crowdfunding can’t pass itself off as a Kickstarter wannabe) 82 Title III equity crowdfunding campaigns were filed with the Securities and Exchange Commission in the first quarter and 20 campaigns have exceeded their target amounts, which is nothing to sneeze at. That’s a 24.4 percent success rate which is two to three times the success rate that most rewards-based crowdfunding sites like Indiegogo or GoFundMe reportedly have.

Show me the money

The average investment commitment to date is about $810, which is more than 10 times the average donation on Kickstarter, the most well-known rewards-based crowdfunding site. This should not be surprising, given that investors are actually buying equity and owning stock in these companies, not just paying for a “reward” or a pre-sale of a product to be manufactured.

In fact, the target goal of Regulation CF offerings so far has been a huge predictor of success. Companies that set lower and realistic target goals (the minimum amount they need to raise to be allowed to keep the committed investment funds) have exceeded these minimums by 423 percent.

Companies that have set unrealistic target goals have failed miserably.

An even better part of the JOBS Act points out SeedInvest is the Regulation A+ Mini-IPO which gives a company the ability to raise up to rather than being capped at $1 million.

I don’t want to beat this topic to death with a bunch of “report card metaphors,” but suffice to say that at this point Regulation CF appears to be a success despite the legal limitations it imposes.

#Crowdfunding