Indiegogo’s crowdfunding platform, which enables everybody to financially support ideas in order to help turn them into reality, is launching a new service. Now, instead of getting a shirt or a thank you letter, you can invest in startups and get a share of its future success (provided there is any, of course). Anyone over 18 can invest, starting from just $100 (the maximum investment will be determined according to the type of business raising the money).
In contrast to basic crowdfunding based on remuneration (whether through a finished product or a shirt), with the equity crowdfunding method, people can get actual shares in the company for their investment. Up until recently, only accredited investors – meaning that your net worth is north of $1 million – were allowed to support ventures existing only on paper. Starting last May however, a new law states that anyone can invest $2,000 or more a year in small companies in exchange for a share in the business. Companies can raise up to $1 million in this way.
Through equity crowdfunding, not only can young startups receive essential aid from legions of supporters, their investors can play in the big leagues by supporting a business they believe in, and possibly also make a buck in the future. Such an investment may not get you a seat on the company board of directors, but you can certainly help an idea become a reality. Indiegogo’s new service was created through cooperation with MicroVentures, a special platform for such investments, through which over $100 million has been raised.
Israeli venture OurCrowd is similar, but not identical. In contrast to Indiegogo, you have to fulfill very specific criteria in order to support ventures through OurCrowd, including an investment of at least $10,000 per company.
As of now, four startups in search of investments are being offered through Indiegogo: ArtCraft Entertainment, which is developing an online role playing game; Play Impossible, a gaming company that has developed a smart hooked-up ball; a cocktail bar named Republic Restoratives; and BeatStars, which offers a social marketplace for music listeners. If the new model turns out to be popular, more opportunities will probably be offered.
It is important to keep in mind that if you decide to invest in a startup, the process will include all the costs and ups and downs of a beginning venture. It’s legitimate to be optimistic, but don’t expect to get rich quickly (or at all).
There is also some cause for concern here, having looked at cases in places like the UK. An equity crowdfunding platform called Seedrs has been letting average folks invest small amounts into what appear to be interesting young businesses. While all could be well and good, the fact that some of the investments come in at way under £100 is a bit of a red flag. While this seems like a great way to let the small guy in on supporting a company that they like, it raises questions about the seriousness of the platform. Moreover, the valuations of some of the companies, based on revenues listed and the kinds of businesses on offer are at best dubious.
Hopefully Indiegogo and their partners at MicroVentures will do a good job in keeping things on a normal playing field, within the lines of good practices, and turn up more interesting companies that are worthy of our love.
Gabriel Avner contributed to the reporting