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A Snapshot of Crowdfunding

A recent survey conducted by the Crowdfunding Professional Association has shown encouraging results for the state of crowdfund investment, spelling out its implications in terms of investment targets and prospects for employment. Led by SeedInvest CEO Ryan Feit, who also serves as co-chair of the Education and Training Committee of the CfPA, the survey polled 442 respondents (287 entrepreneurs, 166 investors, 179 intermediaries and 11 unspecified). More details can be found in the full report, but here’s our recap (and here’s Yahoo! Finance’s take):

– Technology came in at the top of the list of entrepreneurial activity looking to be crowdfunded, with 30% of entrepreneurs polled from the technology sector, outstripping those in Media, Finance and other sectors by a large margin.

– When entrepreneurs were asked how they would attract investment, 34.67% of respondents said they would choose the most visible platform, while 34.34% said they would opt for industry specific platforms. This, combined with the previous finding, points to the potential for tech-specific crowdfunding platforms in the market.

– When it came to raising capital, perhaps the most interesting find was that 88.79% of the entrepreneurs were looking to raise less than $1 million. When compared to traditional means of raising capital, which would involve heavy regulations, legal and investment bank fees, crowdfunding stands out as a more effective way of raising that relatively small sum.

– This is also supported by the fact that smaller companies looking to raise capital are often overlooked by traditional banks and angel investors, which attests to the need for community in getting these businesses off the ground.

– Findings of the survey also reflected changes in the categorization of “accredited” and “unaccredited” investors with the JOBS Act, with the majority of investors polled (71%) being unaccredited and would deploy $4,347 per year, whereas accredited investors would deploy $29,987 per year. With legislation allowing the investment of unaccredited investors for the first time, and the majority of investments coming from that sector, this has great implications for small businesses.

While these figures are a case for optimism, the survey also brought to attention the need for further awareness building and outreach on the part of industry experts. 36.64% of respondents ranked themselves as a 5 or less on a scale of 1 to 10 regarding the difference between what is allowed under current crowdfunding, and how it differs from what we will have in 2013 under the JOBS Act. Even though the majority of respondents had a high level of understanding of the new legislation, Feit says, “The general awareness of investment crowdfunding has increased substantially since April but there is still a meaningful opportunity to help entrepreneurs and investors better understand both the nuances of the JOBS Act and early-stage investing in general.”

There is room for improvement, but perhaps the most heartening statistic was the assessment of what factors into investor decisions. While 33% of investors said their main incentive was investment returns, 20 % said their biggest motivation was helping companies get capital where they couldn’t before, a further 20% said their main motivation was being part of something greater than themselves, and 17% said it was the ability to make a difference in the life of an entrepreneur. Luckily, thanks to changes in legislation, these objectives – previously limited to a small group of people – will be available to more than ever before.


This post was written by James Han on November 2, 2012

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