Indiegogo Opens the Door to Small Start-Up Investors

Stacy Cowley reported in Tuesday’s New York Times that, “Armchair venture capitalists will soon have a new place to hunt for intriguing start-ups: Indiegogo, the popular crowdfunding site for developers of creative ventures like movies, games and gadgets.

“Starting on Tuesday, the site will give entrepreneurs the option of offering backers an equity stake in their projects and creations. Indiegogo is the first major crowdfunding site to use a new securities rule that took effect six months ago, allowing ordinary investors to risk up to a few thousands dollars a year backing private companies.

“Previously, only accredited investors — wealthy people with an annual income of more than $200,000 or a net worth of at least $1 million — were allowed to put money into such risky ventures. That created a schism: Companies like Pebble, a smartwatch maker, and Oculus, a virtual reality headset developer, raised millions on crowdfunding sites from eager early customers and used that surge to prove that buyers wanted their fledgling products.”

The Times article noted that, “Securities law had long prohibited regular investors from gambling on private companies because they can be risky investments that are likely to go bad. Half of American small businesses with employees shut down within five years, and those that survive often take many years to turn a profit. Things have not been looking so hot for Pebble, for example, which recently laid off a quarter of its staff.

“Still, some entrepreneurs are eager to test out the new market. ArtCraft Entertainment, a video game developer in Austin, is considering an Indiegogo campaign to find investors for Crowfall, a game it plans to release next year.”

Cowley added that, “The best-known and most active site for crowdfunding projects, Kickstarter, says it is not interested in the equity market.

“‘The purpose of creativity is not to become an investment vehicle,’ said Justin Kazmark, a Kickstarter spokesman. ‘When creative projects escape the need to generate profit, the result is a more vibrant and diverse culture. We’re more focused on a richer culture than richer investors.'”


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