Crowdfunding—already well established in our lexicon—is the way to raise capital for hip new projects. From 3D doodlers to flying cars, it’s disrupting the way enterprises, entrepreneurs, non-profits, and individuals raise capital – enabling large numbers of individuals to fund a project or company, with each backer contributing a small percentage of the total investment.
The fundamental idea behind crowdfunding is anyone can set up a new product or project and invite others to help fund it within a specific time frame. Each project has a funding goal and contributors can kick in as little as a few dollars to thousands. Typically, supporters will get a token gift or special status updates for their help.
There were over 500 active crowdfunding platforms in 2012, raising $2.7 billion dollars, according to crowdfunding site Go Get Funding, and that is set to increase to $5.1 billion by the end of this year.
According to IEEE, science and technology currently make up a very small percentage of the total number of crowdfunded projects, but as crowdfunding platforms like Kickstarter and Indiegogo become wildly successful and R&D budgets tighten, more engineers and industrial designers may join the trend.
KEM STUDIO funded its industrial design project SKATE BENCH No 1 on Kickstarter and raised over $17,000 to manufacture a bench which incorporates a custom skateboard deck atop a continuously bent stainless steel or powder coated frame. The design was a finalist in the 2012 IDEA awards.
GoldieBlox, a toy designed by engineer Debbie Sterling to get girls interested in engineering, also got its big break with Kickstarter. The project raised $150,000 in just four days, ultimately collecting $285,000. On the last day of the campaign, Sterling was contacted by Toys R Us, who will be featuring the new toy on their shelves.
In addition to Kickstarter, there are industry-specific crowdfunding platforms for science and technology, such as FundaGeek, TechMoola, RocketHub and the #SciFund Challenge. It’s likely however that these will consolidate and only the highest quality crowdfunding sites will thrive.
As crowdfunding grows in popularity, so the business strategies surrounding it become more complex. Jumpstart Our Business Startups Act (or JOBS Act), signed in April of 2012, includes a Crowdfund Act which will allow ordinary investors the opportunity to invest in small or early stage startups in exchange for company equity. (Currently, only individuals who meet certain wealth or income requirements are allowed to invest in private companies in exchange for ownership.)
Pending the creation of SEC regulations expected later this year, new businesses will be able to make their own IPOs and enable small investors to act as venture capitalists. This would involve much larger sums than most of the crowdfunded projects today, and Kickstarter has already stated it will forego any type of equity-based crowdfunding due to the success of their current “gifts and perks” model.
By allowing equity investment, lawmakers expect to supercharge crowdfunding, and proponents believe this will give job creators access to more capital and will spur innovation across a wider range of companies and industries – including science, technology and engineering. However, detractors feel that by allowing unaccredited investors to participate in online equity crowdfunding there is more opportunity to scam investors through fraudulent offerings.
Is crowdfunding a good idea for the engineering community? Share your thoughts and experiences about crowdfunding.
Photo courtesy of Witold Mielniczek