Crowdfunding has instigated monumental changes in the startup investment landscape. Many of these shifting trends have helped millions of deserving entrepreneurs, to be sure, but not all of the trends have an obvious upside.
Democratization of Startup Investing
There has been a power transfer from professional investor to the people. Entrepreneurs can engage in product development and interact with customer and fan bases that are readily defined. It’s a form of popularity contest, where individuals demonstrate their approval and desire for inventions or ideas with their crowdfunding pledges, influencing product or service development more directly than ever before. Crowdfunding has community building and collaboration at its very core.
More Fundraising Choices
Startup founders have never had so many choices when it comes to raising capital. Today they can launch a perk-based (reward) crowdfunding campaign; then tomorrow they can conduct an equity campaign; and then next month move onto a more traditional SEC-registered share offering. None of the options are mutually exclusive, and what a company has learned from previous offerings can be incorporated with each step.
Market Research
Validation from the “crowd”, or lack of it, can help founders assess their business model, product functionality, service offering, and more. Not every great idea is going to have traction at the consumer level, and the ability to gauge consumer response in the early stages of a startup’s development can either inform entrepreneurs its time to try something else, or that they should carry on because they’ve got direct and real feedback that they have a winning idea.
Confusing Indices of Success
Just because a startup founder has conducted a successful crowdfunding campaign, even where fundraising goals have been met, does not necessarily mean that startup is ready, or capable, of delivering on future consumer or investor expectations. There is much more than popularity required to build a successful, growing and profitable entity. A company (and its investors) should be careful to not to confuse success of one crowdfunding campaign with the success of the company itself.
Venture Capital Prerequisite
Many VCs expect their startups to have market validation. Crowdfunding is an excellent way to prove market validation. So while a successful crowdfunding campaign is not a guarantee of future success, it can help other, more serious investors, to predict viability.
The Securities and Exchange Commission still requires investors in some forms of crowdfunding to be accredited. Contact VerifyInvestor.com to find out more about our fast, secure and confidential verification process.