Indiegogo, one of the largest and most popular rewards-based crowdfunding platforms, announced Tuesday that project backers will be able to make equity investments.
Since mid-May, ordinary Americans have been able to make equity investments in new companies on crowdfunding platforms. Prior to that, taking an equity stake in a new business was reserved for accredited investors — those with annual incomes of more than $200,000 or a net worth of a minimum of $1 million, excluding the value of their primary home.
The change stemmed from President Obama's 2012 JOBS Act, which reversed more than 80 years of restrictions on capital investments in start-ups for the majority of Americans, and Regulation Crowdfunding, which received the blessing of the Securities and Exchange Commission on May 16. Now start-ups can raise up to $1 million in capital in a 12-month period, with the bulk of Americans allowed to invest up to $2,000 per year.
Indiegogo is by far the largest crowdfunding platform to enter into the equity space. Since its launch, entrepreneurs and techies have used the Indiegogo platform to collectively raise more than $1 billion from 8 million backers. The crowdfunding behemoth, in partnership with MicroVentures, is hoping to dominate the equity crowdfunding space by leveraging its base of more than 15 million visitors per month.
"Since Indiegogo first launched, we've wanted to offer these sort of investments, and we're very excited to be officially giving the millions of people who visit our platform every month the chance to get involved with equity crowdfunding opportunities," said David Mandelbrot, CEO of Indiegogo in a press release.
The companies biggest rival, Kickstarter, has stated that it does not plan to offer equity crowdfunding to start-ups or investors through its portal.
This could be a much-needed watershed moment for the equity crowdfunding industry. Portals have yet to attract the highly anticipated drove of start-ups and investors in the six months since the SEC removed barriers to investing. Since May 16, a little more than $14 million in capital commitments has been raised using Regulation Crowdfunding platforms, according to Crowdfund Capital Advisors.
The source of capital that has allowed equity crowdfunding to grow is wealthy, accredited investors. Crowdnetic, a provider of market data for the the industry and a CNBC data partner, reports that since September 2013 some 6,613 offerings were available on 16 leading crowdfunding portals that were exclusively available to accredited investors. In the last three years, these offerings have collectively generated $1.47 billion in capital commitments among the estimated 300,000 active accredited investors.
"While many are still optimistic about equity crowdfunding for non-accredited investors, the adoption and growth over the past six months has been much slower than anticipated," according to Luan Cox, president and CEO of Crowdnetic. "This may be due in part to the investment amounts (often in the hundreds of dollars vs thousands), the restrictions and the cap put on the raise. So what we are seeing are very small, 'emotional' investments being made, not necessarily for a return but to support the community and its local businesses."
The CNBC Crowdfinance 50 index, which measures the emerging equity crowdfunding market, has shown a continual sharp spike in activity over the last two and half years, when the SEC began implementing crowdfunding rules for accredited investors.