Pebble is a start-up company that makes customizable watches which display messages from your iPhone. In 2012 the company raised over £10m in capital from the crowdfunding site Kickstarter. And it did not just get cash; the company received 85,000 orders for its watches largely from the publicity it received on Kickstarter. Crowdfunding is the hot new way to raise money from the crowd for innovative business ideas. The research firm Massolution forecasts that over $2.89 billion will be raised in 2012 through this method. There are now over 450 crowdfunding sites including 4 in China. Slava Rubin, founder of the site Idiegogo, gives three main reasons why people give money on these sites – ‘caring about the person or company, wanting the product or being part of a community.’
According to the Economist the biggest impact of crowdfunding has been felt in the Creative Arts – 10% of the new films shown at the Sundance and Cannes film festivals this year were crowdfunded. A key factor in the lift-off of crowdfunding is the US JOBS act (Jumpstart our Business Start-ups) which was signed into law by President Obama on April 5th 2012. It encourages crowdfunding and is expected to herald a flood of money from small investors seeking a better return.
What are the benefits for the crowd? You can get equity in a potentially fast-growing company. Alternatively you can make a loan which should be paid back with interest, In addition many companies give benefits and freebies to investors – you become part of their community. However, start-ups have a high rate of failure so this is a high risk way of investing.
A good way to find out more is to check out these leaders in the field: