1 December 2016
Recently, crowdfunding site Indiegogo made two big moves: In addition to traditional crowdfunding, they now offer both standard e-commerce services and equity investments. Let’s talk about these changes, their impact on creators, and my thoughts.
Standard E-Commerce Services
Here’s how Indiegogo describes this service: “Entrepreneurs with products that are currently shipping can tap into Indiegogo’s community of innovation seekers without running a crowdfunding campaign.”
Basically, if you have a product in stock and you want to sell it on Indiegogo, you can now do that, even if you didn’t use Indiegogo to fund the product in the first place.
So why would you use this instead of, say, Shopify? I can see a few reasons:
- Cover the entire product cycle. Kickstarter is awesome, but the platform’s e-commerce utility ends when the campaign does. On Indiegogo, you can run your campaign, accept pre-orders, and then sell the product when it’s in stock.
- Clean product page. If you have exactly one product to sell, Indiegogo’s product page is perfect. Here’s an example. However, I don’t think Indiegogo is setup to be a store for a full line of products, add-ons, and accessories.
- Quick checkout for previous users. If you’ve already pledged for or bought something on Indiegogo, the site already has your information. This decreases the gap between discovery and purchase for any potential customer.
What do you think?
Here’s how Indiegogo describes this service: “We’ve partnered with MicroVentures, a leader in the equity crowdfunding space, to introduce this platform that gives everyone access to invest in innovative startups and growing companies.”
In short (or much longer, if you read this NY Times article), instead of pledging money to a project and getting a reward in return (i.e., a copy of the game), you can now invest a minimum of $100 to own a share of the company.
Why would a backer support this, other than belief in the creator? You’re likely to earn annual dividends if the company does well, and if the company is bought by another company, you will share the spoils. You might be able to sell your shares to others in the future, though I can’t find a confirmation of that.
Why would a creator offer this? It’s simply a different way to raise funds. This is actually a fairly typical way to raise money: You want to start a business, so you ask friends and family to invest in the company, and maybe some strangers invest too. The Indiegogo method formalizes and automates that process.
That said, it’s a complex process because of the extensive regulation (even though that regulation is significantly more flexible than the past). Take a look at the image here to see all of the different information you must provide (this is from Crowfall).
Plus, there’s a fairly significant financial barrier to entry. As the the Times article says, “But for equity campaigns, creators will need to spend about $7,000 on compliance and regulatory costs, Indiegogo estimates, before a campaign is permitted to go live. The site will then take a cash fee of 7 percent on any funds raised, plus an additional 2 percent in stock.”
Will this type of crowdfunding ever catch on? I think it’ll take the following one or both of the following elements to be implemented before that happens.
- Seamless integration with reward-based crowdfunding. As it stands, the two are completely separate. You can have a reward-based campaign or an equity campaign, but not both. I think backers would benefit from having both options in the same place among their pledge options.
- Clear valuation and marketplace. For some reason, the equity projects I’ve seen barely talk at all about how investors will earn money (i.e., the point of an investment). I think it would appeal to investors to see the current value of their initial investment as compared to the original value right there on the project page. Each page could even be its own marketplace, providing a way for people to buy and sell their shares all in one place. Granted, the regulations for that are probably a huge barrier.
What do you think about equity crowdfunding? What would get you to use it, either as a backer or a creator?