It is a well-known fact that funding for a startup does not come from just an idea. Financial and business experts agree that every startup needs a traction and be able to prove the purpose and sustenance of the business in order to attract venture capitalists or angel investors.
This is where Kickstarter and Indiegogo come into play. These are two of the world's largest funding platforms designed to help creative ideas get a jumpstart. These two platforms help aspiring entrepreneurs realize their dreams.
While it may not be easy to get funding from venture capitalists or billionaire investors, startups can turn to crowdfunding to start off a business or for some increased cash flow.
An associate professor at Babson College has said that crowdfunding is more than just a resource for funding a business idea. It is a form of validation by the market and what growth looks like for a business. Crowdfunding is also a strategic insight for evolving entrepreneurs.
Since its launch back in 2009, Kickstarter has managed to raise close to $3.6 billion for a large number of startups and business ventures. Indiegogo has raised close to $1.5 billion since its launch in 2008. The amount raised by Indiegogo were funds for filmmakers for new projects.
Kickstarter and Indiegogo are more of reward-based crowdfunding platforms. A few other platforms like Wefunder and Netcapital implement what is known as equity-based crowdfunding.
Equity-based crowdfunding is similar to angel investing in some ways. It allows small investors or unaccredited investors, as they are commonly called, to invest in a portion of the startup. This has been made possible for the first time since the 1930s, the period of the Great Depression. Entrepreneurs who use the equity-based crowdfunding method can raise a maximum of $1.07 million in funds. The proponents of equity-based crowdfunding are now pushing for a higher limit on the funds raised.
This is a big change for small investors since, until 2016, only accredited investors had the permission to legally buy shares in a startup. Such investors earned an annual income that capped at $200,000. The net worth was close to $1 million.
Under the Jobs Act, in 2017, 481 companies were funded. In 2016, the number was just 178.