USA TODAY International Edition
Crowdfunding evolves into test market for start-ups
Companies can raise cash while seeking validation
Nine years ago, Bobbie Carlton started hosting a once-a-month gettogether for start-ups to mix, meet and get advice.
By 2014, the Boston-area marketer for tech companies and entrepreneurs found herself invited to one-too-many “all-male, all-pale” discussion panels, noting the lack of women and people of color represented.
“I would think, ‘I know 20 women who know more about this. Why aren’t they onstage?’ ” Carlton said.
So she turned to Kickstarter to test a business idea: a searchable database of those women and the event managers looking for them. She called it Innovation Women. Within months, she’d raised $22,000 — $2,000 above her original goal. That helped pay for a website. Yet the exercise gave Carlton something even more valuable: 200 women who opted for a database listing as a Kickstarter reward in- stead of a T-shirt or business card phone case. Today, Innovation Women has 3,300 members and interest from an Angel — or early-stage — investor.
“If you want to get funded by an Angel group or a venture capitalist, you need more than just an idea,” said Carlton, 52. “You need to prove that there’s a need, to prove you know what you’re doing when you run it.”
A decade after Kickstarter and Indiegogo were born as a way to fund projects and start-ups during the Great Recession, two of the most important sites for entrepreneurs are evolving. For companies not yet ready to approach a billionaire investor or venture capital firm, rewards-based crowdfunding can be a way to test a market before — or while— searching for infusions of cash.
People “hear crowdfunding and they think of the funding part. But arguably, for an entrepreneur, that’s not the most valuable part,” said Erik Noyes, an associate professor at Babson College. “It’s really the market validation, the strategic insight and what a growth cap might be.”
Kickstarter has raised more than $3.6 billion for its users since it began in 2009, according to statistics on its website. And Indiegogo has raised almost $1.5 billion for users since its 2008 debut as a way for filmmakers to fund projects.
Kickstarter projects that reached their funding totaled about $608 million in 2018 compared with $1.7 million in 2009, according to the company. Indiegogo doesn’t release annual figures.
There are dozens of specialized kinds of crowdfunding. One group includes Wefunder and Netcapital, as well as Indiegogo. They involve a method called equity crowdfunding under the 2012 federal JOBS Act and enacted in 2016.
Total crowdfunding under the JOBS Act rules rose to 481 companies funded in 2017 from 178 in 2016, with $76.8 million raised so far, according to Crowdfund Capital Advisors.