As seen on Forbes, by Chance Barnet, CEO at Crowdfunder
Fox and the media had caught wind of the growing Oculus Rift backlash from people who had donated to the $2 million Oculus Rift campaign on Kickstarter.
Those supporters/donators didn’t get any benefit from Facebook’s recent acquisition of Oculus Rift for $2 Billion. Yes, billion.
Had the $2.4 million that Oculus raised to launch the company been investment via an equity crowdfunding site like Crowdfunder.com, then it’s estimated that those backers would have gotten a 200x return on their investment.
But because Oculus raised via Kickstarter, which doesn’t offer investment, the 9,500 donors to Oculus didn’t receive and profits or return from the giant $2 billion exit event.
Rewards vs Equity: Will Equity Crowdfunding Go “Mainstream”?
This huge liquidity event for investors in Oculus Rift, but not for Kickstarter backers, is leading to more and more people to asking about and understanding the differences between Rewards-based crowdfunding on sites like Kickstarter, and Equity-based crowdfunding on sites like Crowdfunder.com.
But it also highlights a larger point, which is that you and I live inside a bubble.
If you already understand the difference between rewards-based and equity crowdfunding, you’re probably part of the minority 0.5% of the population who lives inside the “Startup / TechCrunch / Forbes / Bi-Coastal / Sharing Economy” bubble.
Inside the echo chamber of our nice little bubble we constantly hear about products validated and sold for millions on Kickstarter.
With all the hype, it’s hard to remember that most people don’t live in our bubble, and are just starting to become aware of the power and opportunity of equity crowdfunding.
That said, this nascent industry is rapidly accelerating.
Within the short period of roughly two quarters since recent SEC No Action Letters, and the finalization of Title II of the JOBS Act, equity crowdfunding is rapidly becoming the new normal for companies raising Seed and Series A investment rounds.
Early stage entrepreneurs across all kinds of industries are rapidly waking up to the fact that financing their business with investors, even when it’s done with angels and VCs, isn’t just a Board Room activity anymore. They can now use a platform like Crowdfunder to do so, while telling a much bigger story about their company, build brand equity and momentum, engage their community by offering equity, and ultimately raise money faster and more efficiently.
As an example, a startup named TradeYa recently closed out their Seed round on Crowdfunder in just 3 days. One of the angels who invested online was also smart money who the TradeYa team made a strategic Advisor weeks later.
First Rewards, Then Equity Crowdfunding: Don’t “Rift” Your Community
It’s clear that rewards-based crowdfunding plays an important role in supporting and funding ideas, creative concepts, and newer businesses or projects. It’s a great way to get an idea off the ground and build a brand and community.
With that, the Oculus Rift outcome demonstrates that companies looking to raise money via rewards-based crowdfunding need to think about how they continue on after taking rewards-based funding.
Equity crowdfunding as a follow-on to further engage their community and offer them the ability to participate via an ownership stake makes for a great way to both formally finance a business and gives supporters the opportunity to become investors and shareholders.
Another example that drives the point home is the Zach Braff crowdfunding backlash.
Zach Braff raised millions in rewards-based crowdfuding for his film project, then immediately went and sold equity to institutional investors who got a participation in future profits.
The crowd lashed back very publicly, as they did not have the opportunity to invest after supporting the project with millions in donations.
Not only was there tremendous negative PR around the crowd feeling slighted, but a huge opportunity was missed to further engage the community by offering them the opportunity to invest.
At Crowdfunder we’re seeing a strong movement of companies like this coming on to our platform- companies who were previously funded between $25,000 and $5M on Kickstarter or Indiegogo, and who are now coming to also offer equity investment to their community.
I’d post about them, but I don’t want to be seen as publicly representing them or generally solicit, as many companies are doing private raises within the Crowdfunder investor network of currently over 45,000 individual accredited investors, angels, VCs, and entrepreneurs.
For these companies raising investment online, equity crowdfunding isn’t just the next stage of their financing roadmap and maturity. It also now allows them to offer true ownership to their supporter community.
That way they don’t feel “Rifted” by not getting the opportunity to invest online.