2 Recent Innovations on Indiegogo

1 December 2016 | 6 Comments

igg_logo_frame_gogenta_rgb-2-acdbed8c9b7f24c740e03f2e3fd13f60750a6ccb3817414df4f00a90d518d960Recently, 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?

Equity Investments

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.

2016-12-01_1044Why 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?

Also read: A Clever IndieGoGo Innovation and Kickstarter vs. Indiegogo: Which Crowdfunding Site Should You Choose?

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6 Comments on “2 Recent Innovations on Indiegogo

  1. I think the issue with the equity side of things is the high level of entry and the low possibility of reward. During an equity campaign there are a limited number of shares that a company can generate and sell and/otherwise the value of those shares will shift significantly during the campaign. Because of this is can never have an exploding kittens or a kingdom death: monster happen. So you have new creators trying to decide between a platform where they have minimal theoretical upfront investment and unlimited reward or one where they have a high level of entry both financially and in terms of paperwork and a distinct ceiling on what they can earn, and that seems an easy choice. Also, people are generally more worried about selling their company than their products.

  2. The e-commerce service helps me solve the quandary of how to use Indiegogo to complement, not compete with my Kickstarter campaigns and audience. I’ve sent Indiegogo an e-mail asking to be part of their pilot program. I will report back here as things move forward. As always, thanks for the information Jamey. So helpful.

  3. I like the new features on Indiegogo, Many times when you search for a product its top result is its Crowdfunding page, so it allows you to use that momentum to continue to sell your product, without having another website, or use another shopping cart system, which when you are first starting out, is hit or miss depending on your solution, and as you said it allows for quick check out if Indiegogo has your information stored, which is part of the reason many shop on Amazon, because its quick and easy.

    The equity side is definitely something that is needed for some small businesses, but it does take a lot for a company to get to the point where they are meeting the regulations and requirements to be able to do that.

    The other side of the problem is that Kickstarter is the biggest name in town when it comes to the Board game market, most people don’t go looking on Indiegogo for board game projects.

  4. I’ve been following the rise of equity crowd funding this last year. It’s a really cool idea, but unfortunately, as you pointed out, regulations make it difficult for the small companies who could most use it to enter the market.

    On the one hand, we do need regulation, as it would be really easy for companies to take advantage of vulnerable people who trust without doing research. On the other hand, I have a feeling that brokers and other big money and lobbyists will try to keep it from being super accessible, as it could present a threat to their profits. They don’t want common people being able to easily invest in companies, as I’m sure it would make many companies less reliant on VC and angel investors for funding (and thereby control).

    Great article, thanks Jamey!

  5. I have been involved with a couple of equity crowd funding projects. One was for a media company via quire.com and a couple for individual video games via fig.co. The latter did give a nice graph and fairly clear explanation of what would have to happen for you to receive a return on your investment which I was really impressed by. In particular, fig.co offers an integrated campaign where they raise money from both traditional backers, and from equity backers. They do not yet have a marketplace or a valuation for existing owners.

    It is definitely an intriguing idea though, and will be interesting to see how it evolves over the next few years.

    1. Thanks for sharing fig.co, Dan! Their way of mixing rewards and equity is a little different than i imagined (I envision separate reward levels–one or the other, or maybe both too), but they do some other things that are pretty cool.

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