Indiegogo’s Second Act: Equity Crowdfunding

Indiegogo Moves Forward with Equity Crowdfunding.

Thanks to Title III of the JOBS (Jumpstart our Business Startups) Act which took effect in June, Indiegogo is ready to set its entrepreneurship sights on equity crowdfunding, the transformational fundraising sector that turns ordinary people into investors by letting them purchase a small equity stake in startups. Before JOBS, the only investors who could make their marks in these ventures were those who had incomes of at least $200,000, or who possessed $1 million or more in assets. That kept the investment market pretty much limited to the same traditional business demographic that had always dominated the process, but now that Title III lets companies sell actual equity, Indiegogo has the potential to become one of crowdfunding’s most substantial platforms for entrepreneurs.

Having raised nearly $1 billion in the past eight years, Indiegogo brings an impressive set of credentials to this dynamic entrepreneurial model. The 15 million people who visit Indiegogo on a monthly basis are a built-in potential pool of investors; the crowdfunding platform’s 650,000 total campaigns, of which 350,000 were for small businesses, boast an entrepreneurial alumni field of seven million backers. Numbers like that move Indiegogo to the head of the class when it comes to the earning possibilities for equity crowdfunding.

Indiegogo Indemand

How Indiegogo Prepared for Equity Crowdfunding.

Entrepreneurship has been finding a comfortable home in the Indiegogo nest for the past two years with the addition of products and services that help the entrepreneurs build their businesses beginning with their initial concept to manufacturing the final product. This was developed further when InDemand was rolled out, a service which allows the Indiegogo entrepreneurs to continue the fundraising momentum after their campaign has ended. This critical order management, which allows new companies to track their sales and customers, is already a success; the money that was raised in the second quarter of 2016 tripled in comparison to the same quarter last year. Indiegogo’s InDemand program provides a second act for a successful crowdfunding campaign that has concluded by transitioning them into ecommerce. For example, the BaxBax travel jacket campaign which raised $9.2 million during its Kickstarter phase, brought in an additional $2.3 million when it continued crowdfunding on Indiegogo’s InDemand.

Indiegogo’s David Mandelbrot, who took over as CEO of the San Francisco-based company in January of this year, describes the crowdfunding’s crystal ball forecast for equity crowdfunding. “We’ve been developing products and forming partnerships to help entrepreneurs at all stages of their journey. The way we describe it at Indiegogo now is that we are really focused on the full lifecycle of the entrepreneur.” In an interview with Entrepreneur magazine, Mandelbrot revealed Indiegogo’s blueprint for the future. “We want to enable the entrepreneur to take their product essentially from concept … all the way to market, so we have been building a suite of products and partnerships to make that possible.”

Indiegogo’s Retail Partners Pave the Way to Equity Crowdfunding.

Early in 2016, Indiegogo gave intrapreneurship a try with its enterprise platform that assists the would-be entrepreneurs or innovation teams of large companies who need to test their products with consumers. The impressive list of intrapreneurship pioneers includes GE, which often uses its own product incubator FirstBuild to test products on Indiegogo, and Whirlpool, which didn’t launch its Vessi home brewing kit until first testing it with its intended market.

Consumer electronics company Brookstone has its Brookstone Launch program, which helps the Indiegogo community with product development, manufacturing and distribution. One company, which raised $3.4 million on Indiegogo, hit a wall when it was time to navigate the tangled maze of manufacturing. By partnering with Brookstone, the company was able to get their product on the shelves in time to entice holiday shoppers, and Brookstone, thanks to the Indiegogo success, realized that the company would be a wise investment and a popular one for customer sales.

Slava Rubin - IndiegogoLikewise working with Indiegogo, Arrow Electronics gives select tech entrepreneurs no-cost access to its engineers, planning tools, and prototyping services. As Mandelbrot views the matter, “For a company like Arrow, that has worked with really big electronics manufacturers, it’s important for them to have access to this new class of entrepreneurs who are on Indiegogo.” Indiegogo, along with the rest of the business community, has noticed that bigger isn’t necessarily better. “In a world of 3D printing, the Internet of Things, and just-in-time manufacturing, you can manufacture on a really small scale.” Large or small, the sky is the limit for Indiegogo’s equity crowdfunding future.

Indiegogo’s nimble approach is a winner, says Richard Swart, the chief strategy officer for Nextgen Crowdfunding, which provides education and advocacy for the crowdfunding industry. “All of the ancillary services Indiegogo now offers are particularly useful for any company building up to the phase where they want to sell equity to investors.” Swart says. Indiegogo’s advantage is obvious. “Clearly any platform or portal with an extensive database of users has a competitive advantage.”

How Equity Crowdfunding on Indiegogo will Happen

Indiegogo is close-lipped about whether it will have a broker-dealer for a partner. Title III regulations require that the sale of equity must be handled by a registered online portal, a broker-dealer, or a partnership with one of these. In the past, companies raising money on crowdfunding sites could only do so by offering early or discounted products or other services, known as perks, in exchange for the donation. Indiegogo is in the process of exploring ways to implement the Title III regulations. In fact, Mandelbrot reminds skeptics that Indiegogo’s former CEO lobbied hard in 2012 for the passage of the JOBS Act. That was an initial phase that Indiegogo is now ready to capitalize on, thanks to its millions of backers and thousands of entrepreneurs.

No Equity Crowdfunding Competition from Kickstarter.

Kickstarter spokesman Justin Kazmark explains that the crowdfunding giant won’t be offering equity crowdfunding because “not all creative ideas are meant to be investment vehicles.” Kazmak agrees that equity crowdfunding is a powerful investment model, but he notes that it has limitations.

Despite the potential of Title III to fling open the doors for small businesses that are looking to attract alternative ways to bring in the money they need to thrive, Wefunder, one of the ten funding portals that’s authorized by federal regulators to conduct the offerings, has calculated that approximately three dozen companies have been involved in raising a little more than three million dollars. Wefunder president and cofounder Mike Norman concedes that Indiegogo’s embrace of equity crowdfunding will lure more attention to the infancy stage of equity fundraising. He counters that advantage with Wefunder’s own ability to assist companies through the sometimes-complicated preparation process of selling equity, include SEC forms that have to be filed, and disclosures to potential investors.

The stage is set for a new business model, and it looks as though Indiegogo may have a starring role in equity crowdfunding, as the crowdfunding platform prepares for its entrepreneurial closeup.