Indiegogo has allowed startups such as The Can Van in Belmont, Calif. to move forward as a venture. The Can Van is a mobile business that helps small craft breweries can their beer for distribution. They raised about $4,000 of its $10,000 goal through Indiegogo.
While the funding campaign fell short of their total goal, they pocketed the $4,000 raised — and plenty of local media exposure, said The Can Van co-founder Jenn Coyle Catalano.
A New Path for Upstarts
But for every success story like The Can Van, there are crowdfunding growing pains. With the initial buzz of crowdfunding waning, funders are discovering first-hand the pitfalls of investing in early-stage projects. Crowdfunding sites don't offer refunds of pledges — whether you change your mind, or if the product is delayed for some reason. You're out of luck.
Despite the risks of using crowdfunding, there's no denying the new platform is reimagining the path of upstarts. Crowdfunding is an opportunity for entrepreneurs, who might have been bypassed by traditional investors such as banks and private equity.
The Lockitron team got started with angel investors but other, traditional capital sources were closed to them. Banks don't like to give loans for unproven projects and private equity largely is relegated to projects much larger than Lockitron, Gerhardt said.
That's where crowdfunding can create new opportunities for a group of entrepreneurs, who may have been denied capital in the past.
"Crowdfunding might identify underserved markets and undeserved startups," said Thom Ruhe, vice president of entrepreneurship at the Kauffman Foundation. "It has the potential to lead the traditional funding community into new areas. Smart money likes to follow smart money," Ruhe said.
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As the seed-funding space continues to change and mature, the bottomline so far is: even crowdfunding is a lot of work. Most campaigns raise the first 20 to 30 percent of their total goal from friends and family, said Danae Ringelmann, co-founder of Indiegogo. Entrepreneurs then have to roll up their sleeves and tap their entire network.
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