The Democratization of Startup Funding


   “The crowd makes the ball game.”
                                      Ty Cobb, American Major League Baseball Player


Most startups will say that the biggest challenge they face is access to capital. Great entrepreneurs develop many good ideas that fail to get to market, not because of a lack of commitment, innovation or energy, but because entrepreneurs have families to feed and bills to pay.

The current economic downturn has made the funding challenge more difficult with the reduction in available capital. The future, however, is looking brighter for entrepreneurs.

The Present: How Crowdfunding is Currently Financing Startups

Individuals, businesses, and nonprofits of all types are successfully using crowdfunding to fund part or all of their ventures, raising anything from several hundred to several hundred thousand dollars.

There are thousands of crowdfunding success stories from all over the world. The TikTok iPod Nano Watch Wrist Strap is probably one of the most well known. Scott Wilson attempted to raise $15,000 using crowdfunding to fund the production of two Nano watch kits. Scott exceeded his target and went on to raise an incredible $942,000 within three months without having to give away equity or take out loans.

Currently, crowdfunding in the United States does would fall foul of SEC regulations if entrepreneurs were able to offer non-accredited investors equity in return for funding. Instead, entrepreneurs can offer rewards, for example, a copy of the software or product, in return for funding.  Scott Wilson raised $942,000 by offering ‘rewards’ of his Nano watch kits.

Crowdfunding in this form is working for many entrepreneurs, although for historical reasons there is far greater awareness of its potential in the arts world than the startup community.  With this in mind we recently launched Crowdbackers, a fundraising platform specifically for entrepreneurs

The Future: The Entrepreneur Access to Capital Act

Earlier this month, the US House of Representatives voted 407 to 18 in favor of the Entrepreneur Access to Capital Act. If passed by the Senate, the legislation will allow entrepreneurs to offer shares of stock directly to ordinary investors through established and vetted crowdfunding platforms.

Finally, ordinary men and women will be able to invest in the next Facebook or Twitter and entrepreneurs will no longer be limited to seeking investment from inaccessible investors.

No doubt there will be teething problems, and crowdfunding will not be the perfect or complete solution for every entrepreneur. For our part, however, we wholeheartedly welcome this positive step towards the Democratization of Startup Funding.

About the author: Martin Soorjoo

Founder of The Pitch Clinic, Martin Soorjoo is a pitch strategist. He coaches entrepreneurs world-wide, helping them launch and raise funding. Prior to founding The Pitch Clinic, Martin spent 15 years as a former award winning attorney. He has worked with start-ups and investors, including senior investment bankers, venture capitalists and angel investors. During this period Martin raised several million dollars, including negotiating one deal worth $75 Million. This experience has equipped him with unique insights into the challenges start-ups face and how investors make decisions. He is a Certified Master Practitioner of Neuro-Linguistic Programming (NLP) and an expert in body language.

Martin is the author of ‘Here’s the Pitch‘.

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