Like many new graduates, Dallas Roberts wanted to celebrate the end of his studies at Western Washington University in Bellingham, Washington, with a trip. His proposed destination: Philadelphia, where he could attend the Democratic National Convention to support Bernie Sanders. The 22-year-old couldn’t afford the $3,000 he estimated the trip would cost. So he did what many people of his generation would do. He turned to crowdfunding website GoFundMe. In just under a month, Roberts raised $1,500, enough to cover his $545 flight and a $380 per-night hotel room, which he’s sharing with two other delegates. “You have to come up with funds one way or another,” Roberts told me in a phone conversation last week before making the trip to Philadelphia. “Without the GoFundMe campaign and the generous contributions from friends and supporters, I wouldn’t have been able to do this.” Roberts isn’t alone. Delegates are expected to foot the bill themselves, and attending the DNC is expensive. Organizers require delegates to stay at specific hotels that range in price from $300 to $600 a night, depending on how close they are to the convention center. Then there are flights, meals and the occasional tipple. Add it all up and being on hand for Hillary Clinton’s crowning will likely cost many delegates more than $4,000.
Just about everyone these days is looking to make a few extra bucks. But with the recent stock market turmoil (thanks loads, Brexit!) and paltry interest rates making savings accounts seem only slightly better than just stuffing cash underneath your Casper mattress for (lumpy) safekeeping, investors are on the prowl for the next lucrative investment. Enter crowdfunding. It’s a concept that has been defined over the past decade mainly by money-raising schemes for offbeat, feel-good, or flat-out-weird ventures: documentary films, donations for disaster relief, headphones for cats, you name it. So what’s the allure for real estate, a booming business that generally doesn’t seem to need the help of contributions from mass groups? Simply put: It allows average folks to live the speculator’s dream—to pool together their money to invest in apartment complexes, office spaces, even commercial shopping centers. Give the credit to a change in federal laws that kicked into effect in May. It opened up the concept of getting money back on crowdfunded investments—as opposed to, say, just a free T-shirt via Kickstarter—to the masses, rather than just the wealthy. As a result, crowdfunding real estate companies have been popping up at a breakneck pace, allowing ordinary men and women to dream of becoming a real estate mogul. (Because real estate moguls are all the rage these days, in case you haven’t noticed.) But are these types of projects a safe investment for those who don’t have billions (or maybe millions) in the bank like Donald Trump? The experts say: Probably not. After all, you’d be gambling on projects that may never get constructed or rake in profits. “Crowdfunding can be insanely risky,” warns Sherwood Neiss, principal of Crowdfund Capital Advisors, a venture capital firm that invests in financial technology companies. “Your chances of losing your investment is greater in crowdfunding than [in many] other forms of investing.” How does crowdfunded real estate work? Here’s the idea: Instead of getting a token gift for your cash contribution, like you would on Kickstarter or Indiegogo, fledgling venture capitalists will get an agreed-upon amount of money back from their investments—or a percentage of the profits if the projects are successful. Note that little word: if. If they don’t actually get built or turn a profit, investors could say bye-bye to a chunk of cash.
Crowdfunding for small businesses was once a promising proposition, a business model that enables individuals to raise money for startups online to facilitate access to financing for entrepreneurs without the red tape. But reports on Wednesday (July 6) have pointed to the lackluster launch of SME crowdfunding. According to the Associated Press, fewer than 50 small businesses are listed on crowdfunding platforms in hopes of raising money — weeks after regulators officially allowed small businesses to crowdfund. The Securities and Exchange Commission finalized Title IV of the JOBS Act last year, a move that approved changes to Regulation A (now dubbed Regulation A+) that expands the definition of a “qualified investor” to allow individuals to participate in small business investment activity. While other crowdfunding sites, like Kickstarter, also allow individuals to fund startups, they don’t receive monetary returns on their investments. But recent reports pointed to the muted performance of investment levels. Some analysts, reports said, estimate that about half of the investors participating in crowdfunding rounds for small businesses are friends and family members, suggesting that the general public is getting left out of the game. This could be because they are unaware of the opportunity to invest or because they are taking time to see how SME crowdfunding evolves in its first days. As of Wednesday, the AP reported, 24 businesses listed on one crowdfunding site, Wefunder.com, have collectively raised less than $3 million. “It’s going to take time for people to know it’s possible for them to get into it,” said Wefunder Cofounder Nick Tommarello. He added that social media will likely help these startups raise awareness of their crowdfunding campaigns. Reports said some industry players expect individual participation in SME crowdfunding to increase with time as the word gets out. Whether that will impact every business looking for capital, however, is unclear. “Because crowdfunding is new, it’s hard to know if or when companies without the mass market appeal of a brewer or entertainment business will start drawing interest,” the AP wrote.
Indiegogo wants to be a whole lot more than a crowdfunding platform, its CEO says. It’s looking to position itself as a go-to “springboard” for business owners, says David Mandelbrot, who took over as CEO of the San Francisco-based company in January. “The way we describe it at Indiegogo now is that we are really focused on the full lifecycle of the entrepreneur,” Mandelbrot says during a conversation with Entrepreneur last week. “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.” David Mandelbrot, the new CEO of Indiegogo, is third from the left. He is standing with all three co-founders of Indiegogo. Image credit: Indiegogo Going forward, crowdfunding will be the first of three services that Indiegogo will offer. The second will be a pre-order service called InDemand. With it, entrepreneurs can accept orders that come in after their crowdfunding campaign officially ends. Since launching early last year, InDemand has been growing rapidly. The dollars raised on InDemand tripled in the second quarter of 2016 compared with the same time a year earlier. Related: Indiegogo Launches Commerce Option for Successful Crowdfunding Campaign Owners The InDemand program gives entrepreneurs with blockbuster crowdfunding campaigns a way to transition into ecommerce. It’s available to creators of successful campaigns that run on Indiegogo and other platforms. For example, the BauBax travel jacket raised $9.2 million on Kickstarter and then launched an InDemand campaign on Indiegogo that brought in another $2.3 million, for a total of $11.5 million.