Why Kickstarter and Indiegogo Crowdfunders Should Consider Wall Street Instead

Jacob Harper  |

The end of May saw two disparate crowdfunding campaigns get serious traction on social media – and bring in millions of dollars to boot. Notable of both was the fact that both projects were altruistic, promising to use their funds to not just fill the project originator’s pockets, but ultimately make the world a better place.

The first, an Indiegogo campaign to design and implement solar roadways around the US, was an absolute smash (though its feasibility was not without its vocal detractors.) The second was actor LeVar Burton’s crusade on Kickstarter to reboot the popular, educational children’s show Reading Rainbow. In transitioning the show from its non-profit origins to a for-profit enterprise, Burton’s campaign was also criticized. But like the solar roadways campaign, it has been incredibly successful.

And in both cases, contributors to the campaigns, those “ground-floor investors,” will never see a dime of any future profits earned by the companies they helped start.

This Indiegogo Package Has Everything (But Ownership)!

People who contributed to one, or both, of these campaigns did receive something in return, like an autographed headshot or a mug and a t-shirt. What they most certainly did not receive was equity, or any ownership of the company.

This is what sets crowdfunding like Indiegogo and Kickstarter apart from about every investment strategy in history. With projects funded via those sites, investors, called “backers,” get trinkets or favors. And never a piece of the action.

And that can end up being big bucks lost indeed – think virtual reality gaming company Oculus Rift, which was partially funded via Kickstarter before being sold to Facebook (FB) for $2 billion. In a standard investment, those early Oculus backers would have received equity, and thus a windfall for their financial support when they sold out to Facebook. Greg Belote, the co-founder of equity crowdfunding platform Wefunder claimed made the assertion that the return should have been 145 times original investment, or $145 for every $1 invested in Oculus. Of course, the Kickstarter backers did not receive equity, and thus they received zero profit.

The owners of Oculus certainly did, however.

Not an Investment, But a Donation?

To be sure, lack of equity didn’t stop people from pouring money into both the Solar Roadways and Reading Rainbow campaigns. It’s a testament to people’s desire to fund projects they believe will do good, no matter if ownership is involved. Not an investment, but a donation.

But they should be aware that unlike most donations, Indiegogo and Kickstarter backers are giving to a for-profit cause without getting any of the advantages usually afforded to investors in a moneymaking enterprise. That is, they get no ownership, no say in how the company is run, and no windfall if the company sells out. Rights the owner of the company retains 100 percent of.

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There are, however, a lot of companies doing good things that take donations all the time and offer those advantages. Well, "donations" isn’t exactly right.

They sell stock. And any adult with money and an internet connection can buy some at any time.

Funding Good Companies and Getting Something Back Aren't Antithetical

To be sure, if people want to donate their money via Kickstarter and Indiegogo to ethically sound for-profit enterprises, that is their right. But by buying stock in a company, a person can contribute to something good and also become an owner. And gain the perks that come with that. Not a t-shirt, but real perks.

They can have a say in who is in charge of the company. They can have a say in how the company is run. They can, of course, make a little money. And hopefully they can help a company accomplish their altruistic mission.

Of course a public company is beholden to profits. But this is not to say those profits aren’t being realized while accomplishing what their investors consider to be a worthwhile mission.

Receving Fair Value for Your Investment

The popularity of the Solar Roadways Indiegogo proves there’s overwhelming general public interest in developing solar technology. But there are plenty of companies already working on making strides in solar, with much more feasible plans, not to mention the actual resources required for widespread implementation of those plans.  

And several are on the market, actively seeking investors. Elon Musk-associated companies SolarCity (SCTY) and Tesla (TSLA) are both incredibly popular with stock buyers due to their commitment to green energy and electric cars, respectively. Solar panel manufacturers First Solar (FSLR) and Canadian Solar (CSL) are also favored choices with investors, among dozens of others in the burgeoning green energy movement.

All of these companies are available for public investment at all times on one of the major exchanges (NASDAQ or New York Stock Exchange.) All it takes to buy stock in one of them is an account on eTrade or another online brokerage.

Buying stock in a company does not put money in a company's coffers directly. But it does increase interest and share price, which ultimately leads to an increase in the company's capabilities to raise capital and accomplish their mission.

People can give wherever they please, and crowdfunding is an increasingly popular way to do so. But if the goal is affecting social change via pure donation, they might consider giving first to a non-profit cause. Or, if they do want to invest in a socially conscious for-profit business, they might as well give to one that gives them a piece of the pie as well, and not just a token of thanks.

What happened with Oculus can happen again. There's no reason for it not to. When Solar Roadways gets bought out for $2 billion, and the Brusaws get rich while their investors see nothing, they can't say nobody told them.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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