Crowdfunding: Oh Great, Now Anyone Can Invest In An Indiegogo Campaign

November 16, 2016 by Brian Benchoff 18 Comments

Crowdfunding site Indiegogo has partnered with equity crowdfunding startup Microventures to allow anyone to invest in startups.

The comment sections of crowdfunding sites are almost as bad as YouTube. For every crowdfunding campaign that ships on time, you’ll find dozens that don’t. Thousands of people are angry their Bluetooth-enabled Kitten Mittens won’t be delivered before Christmas. Deep in the comments for these ill-conceived projects, you’ll find a common thread. The backers of these projects invested, and they demand a return. This, of course, is idiotic. Backing a project on Indiegogo or Kickstarter isn’t an investment. It is effectively burning money with the hope Kitten Mittens will eventually show up in your mailbox. Until now.

For an actual investment, there are regulations that must be met. The groundwork for this appeared last year when the Securities and Exchange Commission (SEC) introduced rules for equity crowdfunding. These rules include limitations on how much an individual may invest per year (a maximum of $2,000 or 5% of income, whichever is greater, for individuals with an income less than $100,000 per year), how much money these companies can raise ($1M in a 12-month period), and how an individual can invest in these companies.

Right now, the startups shown on Indiegogo and Microventures include an MMORPG, a distillery and cocktail bar in Washington, DC, a ‘social marketplace for music collaboration’, and a Bluetooth-enabled supercapacitor-powered “Gameball™”. All of these projects actually have documentation, and while the legitimacy of each crowdfunding project is highly dependent on the individual investor, there is a lot more data here than your traditional Indiegogo campaign.

This isn’t fire and brimstone and physics-defying electronic baubles raining down on the common investor, as you would expect from a traditional crowdfunding site tapping into the SEC rules on equity crowdfunding. This is, after all, only a partnership between Indiegogo and Microventures, one of the investment ‘funding portals’ that grew out of the equity crowdfunding regulations. In short, putting an investment opportunity up on Indiegogo will require more effort than a project that is just a few renders of a feature-packed smartphone or a video game with stolen assets.

If anything, this is just the continuation of what we’ve had for the past year. Since the SEC released the final regulations for equity crowdfunding, there have been a number of startups wanting to get in on the action. This partnership between Microventures and Indiegogo was perhaps inevitable, and we can only wonder who Kickstarter is about to team up with.

Echo Of The Bunnymen: How AMD Won, Then Lost

December 9, 2015 by Brian Benchoff 177 Comments

In 2003, nothing could stop AMD. This was a company that moved from a semiconductor company based around second-sourcing Intel designs in the 1980s to a Fortune 500 company a mere fifteen years later. AMD was on fire, and with almost a 50% market share of desktop CPUs, it was a true challenger to Intel’s throne.

AMD began its corporate history like dozens of other semiconductor companies: second sourcing dozens of other designs from dozens of other companies. The first AMD chip, sold in 1970, was just a four-bit shift register. From there, AMD began producing 1024-bit static RAMs, ever more complex integrated circuits, and in 1974 released the Am9080, a reverse-engineered version of the Intel 8080.

AMD had the beginnings of something great. The company was founded by [Jerry Sanders], electrical engineer at Fairchild Semiconductor. At the time [Sanders] left Fairchild in 1969, [Gordon Moore] and [Robert Noyce], also former Fairchild employees, had formed Intel a year before.

While AMD and Intel shared a common heritage, history bears that only one company would become the king of semiconductors. Twenty years after these companies were founded they would find themselves in a bitter rivalry, and thirty years after their beginnings, they would each see their fortunes change. For a short time, AMD would overtake Intel as the king of CPUs, only to stumble again and again to a market share of ten to twenty percent. It only takes excellent engineering to succeed, but how did AMD fail? The answer is Intel. Through illegal practices and ethically questionable engineering decisions, Intel would succeed to be the current leader of the semiconductor world.

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SEC Allows Crowdfunding

November 4, 2015 by Brian Benchoff 40 Comments

Kickstarter is not an investment, and no matter how many times this is repeated, you’ll find the phrase ‘my investment’ in the comments section of nearly every failed Kickstarter, Indiegogo, or other crowdfunding campaign. These campaigns are more closely related to group buys, and you’ll never find a Kickstarter offering equity or any sort of return beyond the latest electronic bauble, indie game, or graphic novel. Sure, you may bootstrap a business with that pledge, but don’t expect dividends from Ouya or Pebble.

Now, this may finally change. The US Securities and Exchange Commission approved new rules for crowdfunding, allowing startups to raise money from Jane and Joe Internet.

Previously, angel investments, venture capital, and hedge funds were not for the common man; these were high-risk investments, and only accredited investors could participate in these funding rounds. Accredited investors, at least in the US, are individuals with a net worth of at least $1 Million, or an income greater than $200,000 in each of the previous two years. The reason for only allowing accredited investors – depending on your interpretation – is to protect consumers or to maintain a perverse oligarchy by installing a glass ceiling over the middle class. Either way, normal people couldn’t invest in high-risk investments until now.

Congress has seen fit to create a new class of investor, and pursuant to Title III of the JOBS Act, the SEC recently released the complete rules for crowdfunded investment. In a massive, 600-page tome, all the regulations are laid bare, ready for the next serial entrepreneur who seeks at most $1 Million in investment for their next startup.

Investors and Startups

The rules issued by the SEC immediately place some limitations on what can be done under the new regulations. For startups, a maximum of $1 Million can be raised over a 12-month period.

For investors with an annual income or a net worth of less than $100,000, a maximum of $2,000 or 5% of annual income can be invested, whichever is greater. For investors with an annual income or net worth greater than $100,000, 10% of their income or net worth can be invested, whichever is smaller.

Brokers and Funding Portals

Investors and entrepreneurs are not allowed to keep their transactions to themselves; this is the SEC after all. Transactions will go through registered broker-dealers or something called a ‘funding portal’. These funding portals are forbidden from offering advice, making recommendations, advertising, paying employees a commission, holding securities themselves, and the regulation bars directors, officers, and partners of the funding portal from holding investments using that funding portal’s services.

It’s The Complete Opposite of Kickstarter

Kickstarter was never known for its transparency. While the basic premise of crowdfunding the manufacturing of a few baubles or 3D printers is sound – it’s cheaper per unit to build a hundred of something than to build just one – the reality of actually building something meant Kickstarters failed – it’s exponentially harder to build ten thousand of something than it is to build a hundred. Add to this Kickstarter’s investments in campaigns featured on their website, and you have the recipe for practices that aren’t illegal but certainly don’t pass the sniff test.

The regulations put forth by the SEC turn the most common trope of the Internet economy on their head; companies responsible for bringing startups and investors together are not financially dependant on these startups. Companies can not raise more money than they could handle, and hopefully individual investors won’t take to crowdfunded companies like online poker and day trading.

Traditional crowdfunding has started a lot of great companies so far; the Form1 printer began as a crowdfunding campaign, and Reading Rainbow still lives thanks to a successful Kickstarter. With these new regulations come new possibilities for the latest startups, and more paths to success than a traditional angel investor or VC tycoon.