Research: Investor Interest in Crowdfunding Grows
With a new crowdfunding law about to take effect, new data from the Crowdfunding Professional Association shows the industry’s burgeoning popularity.
There’s good news for small businesses and startups waiting for the legalization of equity-based crowdfunding: New research from the Crowdfunding Professional Association (CfPA) shows a growing interest in this type of investment.
The study, which surveyed 442 entrepreneurs, investors, and intermediaries about their interest in crowdfunding, found that 68 percent of respondents were already very familiar with the concept, and a majority reported that they have a high level of understanding about the differences between what is allowed under current regulations and what the JOBS (Jumpstart Our Business Startups) Act will permit when it takes effect in 2013.
Current crowdfunding models reward donors with gifts, free samples, or other nonmonetary benefits. Under the JOBS Act, equity-based or debt-based crowdfunding platforms will be allowed. The first will reward backers with an equity stake in a business and a share of its profits, while the latter will return the original investment plus interest.
Ryan Feit, CEO of an equity-based platform and a leader in CfPA, acknowledged in a statement the increased interest in crowdfunding but said the public needs to be educated about the finer points of the budding industry.
“The general awareness of investment crowdfunding has increased substantially since April,” Feit said, “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. Both of these objectives are critical in order to ensure that the investment crowdfunding industry takes off with the massive potential it possesses.”
Crowdfunding is likely to make the biggest impact in the technology sector, the study found. Of the survey’s respondents who classified themselves as entrepreneurs, 30 percent were in technology. Media and entertainment, finance, and consumer goods were the second, third, and fourth most represented industries among entrepreneurs (about 10 percent each).
On an altruistic note, while 33 percent of respondents said the biggest driver of investment is the potential for returns, 20 percent stated their biggest driver is helping organizations get capital they previously could not. Another 20 percent reported they want to be a part of something bigger than themselves, and 17 percent said they want to make a difference in the life of an entrepreneur.
The CfPA study was conducted with Crowdfund Capital Advisors.