Online Crowdfunding in 2018: What Are Your Options?

  •    Law graduate and journalist who specializes in helping entrepreneurs market and grow their businesses.

The world of crowdfunding is an ever-changing sea of opportunity. Navigate it successfully and you may just end up with capital for your brilliant business idea.

So, what are the biggest trends in crowdfunding for 2018, and how might they affect your next idea? We combed through a mountain of data to get you a bird's eye view of the situation.

Lesson #1: The Big Three are Still the Big Three

Kickstarter, Indiegogo and GoFundMe have been leading the pack for years, and the proof is in the pudding. These sites are good at what they do.

Kickstarter was the first crowdfunding site to garner national attention, and has now raised nearly $4 billion since its inception. Indiegogo has raised a total of $1.5 billion, with Chinese companies now accounting for 23% of its crowdfunding campaign business. GoFundMe has now topped an astounding $5 billion in funds raised.

Lesson #2: Some New Options Are Gaining Momentum

Patreon
Patreon is newer to the game, but growing in popularity. Thus far, Patreon has been used to send more than $350 million to creative entrepreneurs. This is a favorite for artists and journalists, allowing followers to pay a monthly subscription fee to support their work. In September, Patreon closed a Series C round of funding for about $450 million, at a time when it had 50,000 creators and a million subscribers.

Fundly
Fundly is a direct competitor to GoFundMe and has raised $300 million. While that is a far cry from GoFundMe's $5 billion, it does represent a significant competitor for market share in what was previously a one-horse race.

Initial Coin Offerings (ICOs)
Straddling the line between equity crowdfunding and presales sits the initial coin offering (ICO). The ICO can be seen as a kind of roll-your-own Kickstarter.

When you use an ICO in this way, you essentially mint your own digital currency. You control the supply and the recipients. It is very much like customer rewards points in that it is your system that you control, and you get to determine the value of your digital “coins."

So a company wishing to crowdfund with an ICO can make a coin for practically free and then sell the coin for money to their customers. Why are the customers buying the coin? Because the customers know that they will be able to later exchange that coin for the finished product. In this way, the coin you make can act as the entire fundraising and reward-tracking mechanism.

But the ICO is much more versatile than that, and this puts it into a legal danger zone. If your coin is technically a “security," then you're going to face significant legal hurdles. For most companies, these hurdles are insurmountable, making an ICO simply out of the question. But some companies can save significant platform fees by running their crowdfunding campaign through a cryptocurrency. Ethereum makes this incredibly easy, and includes a walkthrough of a crowdfunding ICO right on their website. This will still be intimidating for most non-coders.

However, the use of ICOs might grow in 2018 as more well-known companies get involved. Indiegogo, for example, is helping launch ICOs now.

Lesson #3: The Age of Equity Crowdfunding Has Arrived

There's another type of crowdfunding where you can raise money by selling equity shares in your small business without having to actually join the stock market. This method is available to small businesses in several forms, most commonly Regulation D private offerings (angel investments) or Jobs Act offerings.

Angel Investments
Regulation D offerings typically involve larger amounts of money from a small number of angel investors. In 2014, more than 33,000 Regulation D offerings accounted for more than $1.3 trillion raised — and that number has only grown since. Popular websites for angel investor campaigns include Gust, EquityNet, Fundable and CircleUp.

Jobs Act Campaigns
Jobs Act campaigns typically involve a larger number of people investing a smaller amount of money per person. These are conducted through either Regulation A+ or Regulation CF. Regulation A+ lets companies raise up to $50 million. However, they also cost a lot more — around $4.2 million on average — and thus aren't as accessible to smaller businesses.

Regulation CF lets you raise no more than $1.07 million. These campaigns cost about $60,000 to $150,000 on average, and thus are more accessible to smaller businesses. Websites such as StartEngine, Wefunder, and SeedInvest are popular choices for conducting CF campaigns.

Equity crowdfunding can be quite a bit more complicated than basic crowdfunding campaigns or donations. But they also have the chance of bringing in a lot more money long term. If you're thinking of trying equity crowdfunding, you'll definitely want to do your research first and consult a lawyer.

The state of crowdfunding for 2018 offers you a number of options to choose from, ranging from the traditional big three to ICOs and equity-based options. Consulting your attorney is always a good idea to ensure you choose the path that's best for your business. As innovations continue to roll in, your funding options will likely only grow.