One of the world’s largest rewards-based crowdfunders is sizing up a move into the equity crowdfunding space.
In a recent interview with The Huffington Post, Indiegogo CEO Slava Rubin described equity crowdfunding as “the Holy Grail”. The recent implementation of Title IV of the JOBS Act appears to have served as the impetus for Indiegogo to make its intentions plain. US firms may now raise up to $50m via a form of equity crowdfunding, and non-accredited investors may participate in fundraises so long as they do not invest more than 10% of their income or net wealth. Prior to the law change, equity crowdfunding in the States was open only to accredited investors.
Mr. Rubin has indicated that Indiegogo will soon be unveiling a new product in order to take advantage of the advent of Title IV. Indieogo’s raison d’être is to “democratise funding”. To that end, an accredited investor-only equity crowdfunding product wouldn’t have chimed all that well with the Indiegogo ethos. But with retail investors now permitted to invest in the shares of Title IV fundraisers, a branching out into the equity crowdfunding space makes a lot of sense.
A Title III based product would make even more sense for Indiegogo. Title III of the JOBS Act remains subject to the approval of the SEC – which is expected to finalise a decision on the matter in October this year. Title IV pertains mostly to larger offerings, and growing companies – a kind of IPO-lite, if you will. Title III specifically relates to “equity crowdfunding”, and will open up offerings of up to $1m to retail investment. If passed, Title III offerings will be much swifter to complete and less onerous in terms of the associated administrative costs than Title IV offerings. Title III campaigns have been designed for startups, and as such, casual investors may not invest more than 5% of their net worth. Indiegogo will doubtless be eagerly awaiting the ruling of the SEC in October.
Indiegogo has been around since 2008, and has launched over 300,000 campaigns to date. The scale of the platform (in terms of its community of investors and fundraisers, and in terms of funds raised) dwarfs the incumbent equity crowdfunding players. Of course, equity crowdfunding is a trickier business. Backers will expect to see a tangible return on their investments, and will not dole out their money lightly, as investors often appear to when backing rewards-based campaigns (see, for example, the infamous Potato Salad campaign).
The rewards platforms have also been able to attract more in the way of VC funding. The UK’s leading equity crowdfunding players – Crowdcube and Seedrs – have announced fundraises £6m and £10m respectively over the past couple of days, both involving leading venture capital firms. For context, Indiegogo raised a grand total of $40m way back in January 2014, courtesy of Institutional Venture Partners and Kleiner Perkins Caufield & Byers.
With so much resource behind the platform, Indiegogo – which operates on a global scale – could make quite the splash within the equity space. Will rewards-based rivals, like Kickstarter, look to follow suit?