Oculus Premature For The Promise Of Equity Crowdfunding

In case you’ve been living under a rock for the past two days, here’s the story so far: in September 2012, a startup virtual reality company called Oculus ran a Kickstarter campaign that raised $2.4 million. Three days ago, the company sold to Facebook for $2 billion. Lots of those early backers aren’t so happy with this development -- mostly, it seems, because they think Oculus founder Palmer Luckey sold out to the devil. But some are upset because they think they should have gotten a payday: We gave you money when you had nothing, now you sold for billions, and we want our share.

The situation has refocused attention on the idea of equity crowdfunding. Unlike Oculus’ Kickstarter campaign, which was rewards-based, equity crowdfunding actually allows those early $25 and $50 supporters to get a slice of the pie in exchange for their contribution -- even if it’s a really, really small slice of the pie.

So savvy entrepreneurs will already be looking forward, seeking to understand the factors that are likely to contribute to your equity crowdfunding campaign’s massive success or devastating failure.

As it turns out, and somewhat obviously, the crux of crowdfunding lies in understanding your crowd. That’s what Anna Guenther, founder and Chief Bubble Blower at New Zealand crowdfunding platform PledgeMe, reinforces every chance she gets. “Crowdfunding is all about your crowd. It’s successful when you have a crowd that is already following you and that you have a relationship. If you give them an idea to get behind, they’ll do it, but they’re not just backing the idea, they’re backing you.”

Guenther is waist-deep in these issues; equity crowdfunding becomes legal in New Zealand on April 1, and PledgeMe will begin to offer it as soon as its license is approved. The movement is growing worldwide, too, with different countries imposing starkly different standards on platforms. While PledgeMe has to respond to a 38-page list of requirements, a province in Saskatchewan, Canada, that just legalized equity crowdfunding has a much simpler process: Send in a two-page application, and if you don’t hear back in a month you’re approved.

In the United States, equity crowdfunding was made legal with the JOBS act of 2012, but the drawn-out process of developing regulations means that, for the moment, it’s only available to sophisticated investors via sites like AngelList. The main thing driving intensive regulations, says Guenther, is that authorities are worried about investors losing their money, whether through a lack of sophistication or fraudulent activity.

But crowdfunding generally has a pretty good track record when it comes to legitimacy, according to a report issued by the World Bank this past October. “The Australian Small Scale Offerings Board (ASSOB),” says the report, “was founded in 2007 and is now the largest investment crowdfunding platform in Australia and one of the largest in the world. It is an equity-crowdfunding platform that has successfully served both accredited and unaccredited investors, raising more than US$130 million for issuers since its inception. Some 176 companies have been funded to date and not a single case of fraud has been reported.”

Part of the reason fraud doesn’t seem to happen very often with crowdfunding is that many eyes make for a more secure environment. Guenther points out that, to successfully pull off an equity crowdfunding campaign, you still need a constellation of trust around. Those first followers get behind you and validate you, and that crowd is more self-regulating than the traditional market.

For her, the excitement about equity crowdfunding has many facets. The first is providing clarity and consistency in those first stages of capital raising. “At the moment,” says Guenther, “a family and friends round is so murky. People don’t know what they’re doing. Equity crowdfunding provides transparency and a clean platform, and hopefully removes some of the baggage.”

A second aspect is increased diversity. While women have historically been dramatically underrepresented on both the investor and investee sides of the equation, the democratization of crowdfunding is likely to change that. In fact, according to a recent Forbes article, “At Indiegogo, 42% of successful campaigns were female-led.”

Guenther’s final reason is personal. Having just done a capital raise herself, she is acutely aware of the missed opportunity to involve PledgeMe’s fans in the process. “There was no way we could go out to our crowd in that recent round we did. That personal pain makes me really excited about what’s coming.”

None of this is of any use to the early supporters of Oculus Rift, of course. But if they look forward instead of backward, maybe what they’ll see in their VR headsets is a more accessible, more democratic equity landscape.

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2 comments about "Oculus Premature For The Promise Of Equity Crowdfunding".
  1. Paula Lynn from Who Else Unlimited , March 28, 2014 at 7:56 p.m.
    Crowd sourcing is a donation, not an investment for the donors. They lose, you lose. They win, you lose the investment part but you win in the donation part. Not that there is anything wrong with an honest charity and people deserve to get help. Put 3 quarters in a slot machine. Get 2 quarters back - the lights flash and You win ! When crowd sourcing grows by selling shares, more legal rules will take stock.
  2. Dong Xing Tan from - , March 31, 2014 at 4:56 a.m.
    Equity crowdfunding is definitely the way to go. The Oculus case is a perfect example. Just look at how much these early investors would have received from the acquisition if it was an equity campaign. Check out why FundedByMe, a swedish crowdfunding site, decided to move towards equity crowdfunding here - http://blog.fundedbyme.com/why-did-we-pivot-into-equity-crowdfunding/ Also, you might want to browse some of the equity campaigns on their site - www.fundedbyme.com which are really good. Who knows? you might just find the next oculus campaign BUT this time, an EQUITY one!