Flexible Funding Drives Innovation - A New Take on Crowdfunding

By Joyce Deuley

Have you heard about the Internet of Things (IoT)? The move from a stodgy, industrial world towards a maker one is now. As technology and creative innovators work in tandem, forming a more progressive market, the need for diversified funding increases. Traditional methods for funding involve seeking angels, accredited investors, vetted venture capitalists, and a lot of time. Getting new projects and startups off the ground quickly requires a shift in how funding is secured. Within the last five years, huge strides have been made that allow for more flexibility in supplying new companies with the capital they need to continue changing the world. Some of these strides have included an upsurge in crowdfunding programs, such as Kickstarter and Indiegogo, and a change in legislation to allow for equity crowdfunding initiatives.

Typical crowdfunding is conducted through an online platform where large numbers of people pledge small amounts of capital to fund a new or existing basis, usually in exchange for a product or service once the new company is up and running. In every campaign, there is a set amount being requested and a designated time limit: continually, the amount of money raised will be counted and visible so contributors can measure its success. Some of these sites operate on an “all or nothing” policy that requires the goal be met within the projected timeline. This ensures that the companies do not run out of funding before their campaign is over and that the investors are protected from failed campaigns. These platforms allow for those seeking funding to receive it without having to provide equity to investors and instead offer products or services to the customer, based on how much money was pledged. Kickstarter, CircleUp, and several others offer the chance for people who would not usually be able to participate in getting a new company off the ground

Many of the projects that have been on Kickstarter have gained more than their target goals, including one M2M/IOT initiative, the Edyn Project, created by Jason Aramburu.  The Edyn Project is a connected soil sensor that detects not only the acidity and moisture in soil, but takes weather and light into account, and only waters plants when necessary. This greatly reduces over watering and watering too little, in addition to providing gardeners and farmers with necessary information to ensure that their yields are successful. Yves Be`har, designer of Jawbone’s UP24 bangles, also designed the Edyn garden system. Aramburu’s Kickstarter campaign initially asked for $100,000 but in a matter of a month, the Edyn Project had garnered more than $380,000*. By exceeding his target goal before the end of his campaign, Aramburu was able to get Edyn off the ground. This benefits not just backyard enthusiasts, but can help big agriculture conserve, preserve, and monitor its crops more effectively.

Investors in the Edyn Project didn’t just get to see the project reach its goal, early investors could opt for special packages starting as little as $99 dollars. In fact, our team opted for a larger donation of $300 dollars and received two sensors plus a water valve. 

Many crowdfunded companies offer incentives or reduced pricing on products for those investors who help them reach their campaign goals. This is a great way, not only to incentivize potential investors, but to also a way to reach out to potential customers, as well as to get a new product into circulation.

Equity crowdfunding is similar to typical crowdfunding; it allows investors who wish to receive an eventual return in the company purchase a percentage of the company. Currently, only accredited investors can participate in equity crowdfunding. Accredited investors are those who have been previously vetted and have more than a million dollars in capital to invest or who make more than $200,000 annually. This severely limits who can invest in these companies. As of now, there have been several steps towards change in equity crowdfunding legislation. Many people feel that equity crowdfunding should be available to non-accredited investors, but that investors should still remain financially protected from risk. The solutions thus far are to set a maximum limit for non-accredited investors, and require that investors use a government, both state and federal, regulated portal that ensures visibility in the investment process.

 Crowdfunding enables disruptive forms of innovation. It takes time for investors to identify and select which companies they’d like to invest in, in addition to the networking process and the cost of investment minimums, it can take new businesses years to finally get off the ground. These new equity crowdfunding portals greatly reduce the amount of time and red tape involved in supporting new businesses. While these new initiatives empower makers to drive creative solutions, the need for secure investment portals should remain a priority as well.

Crowdfunding platforms are expected to exceed more than $6 billion dollars by the end of 2014, solidifying their space in the market, and effectively demonstrating the need for more flexible forms of investment, if we are to maintain speed in innovation and creative solutions. As of 2013, the US companies accounted for a large percent of the world’s crowdfunding platforms, but in August of this year, Italian companies announced a total of nine equity crowdfunding programs that are taking off: Unicaseed, StarsUp, Assiteca Crowd, to name a few*.  These new developments are encouraging—they demonstrate that crowdfunding for both traditional and equity-based programs are a global need. As these portals and programs continue to grow in popularity and refocus legislation, investors, accredited and non-accredited, can assist makers in reinventing the world.

It can take several years for companies to secure initial funding through typical funding channels. This can seriously throttle innovation and impede creative solutions. As technologies and communications continue to shift, it is important that how new companies receive investments should too. The rising popularity of typical and equity crowdfunding on a global scale emphasizes that the world is ready for a shift.