Crowdfunding is a strategy for raising capital that has quickly gained popularity for startups and investors. Rather than trying to attract a few wealthy venture capitalists, startups attract many investors that contribute small amounts of money to fund the startup. The recent Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act, was passed by President Obama on April 5, 2012; it loosened restrictions for startups to raise capital and created new provisions to protect investors investing in startups.

More capital than ever is gravitating toward crowdfunding sites. According to research compiled by Crowdsourcing.org in 2011, roughly $1.4 million were raised through crowdfunding platforms (CFDs) and that number is expected to almost double in 2012. As a result of the massive increase of money flooding in, the number of CFDs is also expected to spike about 60% in 2012 to approximately 530 platforms. Let's take a look at look some of the current top crowdfunding platforms.

SEE: Seek An Adventure In Venture Capital

Kickstarter
Founded in 2009, Kickstarter, as of June 2012, funded over 22,000 successful projects, with nearly 3 million backers and about $197 million pledged. Projects funded include albums, Apple accessories, clothing, films, video games and much more.

Kickstarter works on an all-or-nothing philosophy, meaning that the project must be fully funded before the allotted time expires or no money exchanges hands; this is to protect both parties involved. If the project does not receive enough funding, then there is no obligation for the investor to follow through. The investor is allowed to pledge money without the risk of the project not receiving the full amount needed to launch, and the investor subsequently losing his or her investment.

Kickstarter makes revenue through charging a 5% fee of the funds raised. The fee is only charged on successful projects, meaning that if your project is not successful you do not pay anything. Kickstarter's top funded project is currently the Pebble, a watch designed to connect with iPhones or Android phones to transmit data across Bluetooth so your watch can display messages, calls and emails. Pebble had a $100 thousand goal, but ended up raising over $10 million dollars from nearly 69,000 backers.

SEE: Valuing Startup Ventures

Indiegogo
Claiming to be "the world's largest global funding platform," Indiegogo was launched in 2008 and is definitely a veteran in the industry. The company has two different funding methods: Flexible funding charges 4% if you reach your funding goal and 9% if you don't reach your goal, but you get to keep the funding you raised. Fixed funding charges the same 4% to successful campaigns or no fees if you don't reach your goal, but all contributions get refunded to investors. This method allows more flexibility when starting a campaign.

Another popular aspect of Indiegogo is that it is one of the few crowdfunding sites that are global. Since launching, the site has had over 100,000 projects from over 196 countries. With a recent round of financing for $15 million, Indiegogo's growth may be just beginning.

AngelList
AngelList is a social network designed to connect startups with investors that has taken a different approach to crowdfunding. Rather than creating a site for people to invest directly with the startups, AngelList has created a free network for startups to create a profile on the site. The startup's profile is visible to all, but only the investors of their choice are able to view the fundraising section.

AngelList has a large network of potential investors made up of some high-profile venture capitalists, including Reid Hoffman, co-founder of LinkedIn and investor in Facebook, Zynga, Digg and more, as well as power venture capital firm Andreessen Horowitz, which has provided capital for Airbnb, Groupon, Instagram and some other successful startups.

Since launching in 2010, AngelList has roughly 2,500 investors with 13,000 startups registered. Investments generally range from $50 thousand to $1 million and approximately 400 companies have received investments from about 750 individuals. Successful startups that have used the site include Pinterest and BranchOut.

The site currently does not charge anything to the startup or investors for using the service.

SEE: When Selling Your Startup Makes Sense

The Bottom Line
Being a successful entrepreneur is the dream for many. With startups like Instagram being acquired for a $1 billion after being in business for only two years, one can definitely understand why. Although many other successful crowdfunding platforms do exist, the latter are a few of the most popular. If you have a great idea or wonderful cause, crowdfunding may be a great method to obtain capital.

Related Articles
  1. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  2. Markets

    Trader Joe's Stock Doesn’t Exist. Here’s Why

    Learn about Trader Joe's and how it operates. Understand why Trader Joe's has chosen not to be a public company and why it should remain that way.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares Global Listed Private Eq

    Learn more about the PowerShares Global Listed Private Equity Portfolio, a private equity-based exchange-traded fund, or ETF.
  4. Forex Education

    China's Devaluation of the Yuan

    Just over one week ago the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan, knocking over 3% off its value.
  5. Entrepreneurship

    Top 5 Real Estate Crowdfunding Companies

    It’s estimated that crowdfunding investors will be putting $2.5 billion into the U.S. real estate market in 2015. As an investor, crowdfunding opens up investment opportunities that might have ...
  6. Entrepreneurship

    Top 5 Startups That Emerged in Denver

    Learn why Denver is one of the hottest markets in America for startups, and identify five of the top startups that are emerging from the Denver market.
  7. Entrepreneurship

    Top 5 Startups That Emerged in Raleigh

    Learn about the startup scene in the Research Triangle hub of Raleigh, North Carolina. Discover which startups are the hottest to emerge from this tech city.
  8. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
  9. Entrepreneurship

    Top 10 Startups That Emerged in New York City

    Understand why the startup scene has grown, and discover why it has become a large part of New York City. Learn about the top 10 New York City startups.
  10. Entrepreneurship

    Top 10 Startups That Emerged in Chicago

    Understand why Chicago has become one of the best places to work or start a new business. Learn about the top 10 startups in Chicago.
RELATED TERMS
  1. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  2. Path To Profitability (P2P)

    A clearly defined route to profitability as described in a business ...
  3. Freelancer

    A freelancer is an individual who earns money on a per-job or ...
  4. Donation-based Crowd Funding

    Donation-based crowdfunding is a way to source money for a project ...
  5. Provisional Patent Application

    A short-term means of protecting an invention that requires less ...
  6. Franchise disclosure document

    A Franchise Disclosure Document (FDD) is a legal document presented ...
RELATED FAQS
  1. How do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  2. What does residual value represent in a private equity investment?

    It is common to see a private equity investment's net asset value, or NAV, referred to as its residual value, since it represents ... Read Full Answer >>
  3. What is considered a reasonable interest rate for a syndicated loan?

    A 2010 survey of syndicated loans found an average interest rate of 7.9%. However, the majority of syndicated loans are floating ... Read Full Answer >>
  4. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  5. How strong are the barriers to entry for new companies in the telecommunications ...

    The barriers to entry for new companies in the telecommunications sector are very strong and primarily revolve around the ... Read Full Answer >>
  6. How much, if any, influence do non-controlling interest shareholders have?

    Non-controlling interest shareholders do not typically have much influence. The level of influence can vary, however, depending ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!