Crowdfunding for Startups

I’m fascinated by crowdsourcing and the new business models it enables. Companies have been tapping crowds for product design and customer service for some time now. It’s much trickier to tap the crowd for money, but here are two new startups trying to do just that:

  • Nvohk, which has more than 3,000 people who pledged $50 each to have a hand in an eco-friendly clothing company, and
  • BeerBankroll, which offers members a chance to help run a brewery.

These companies can’t give the crowd equity without filing with the SEC, so crowdfunded ventures are structured as membership organizations — your $50 gets you into the club, with the agreement that the crowd will vote on business decisions and be rewarded with points (redeemable for products) instead of profits. It’s basically a fan club built around the business.

Other crowdfunding ventures include Swarm of Angels (members fund a movie), and MyFootballClub (in which members bought and manage the British soccer team Ebbsfleet United). And last year we wrote about Sellaband, a site that lets bands crowdfund their recording costs.

So crowdfunding seems feasible for businesses that people are passionate about — bands, movies, sports clubs. Beer and T-shirts could also lend themselves to that kind of fan-based financing. But what about other businesses? Will crowdfunding ever grow beyond the novelty stage to become a mainstream way for startups raise money?

Before it's here, it's on the Bloomberg Terminal.