SME Crowdfunding’s Lackluster Debut

Crowdfunding for small businesses was once a promising proposition, a business model that enables individuals to raise money for startups online to facilitate access to financing for entrepreneurs without the red tape.

But reports on Wednesday (July 6) have pointed to the lackluster launch of SME crowdfunding.

According to the Associated Press, fewer than 50 small businesses are listed on crowdfunding platforms in hopes of raising money — weeks after regulators officially allowed small businesses to crowdfund.

The Securities and Exchange Commission finalized Title IV of the JOBS Act last year, a move that approved changes to Regulation A (now dubbed Regulation A+) that expands the definition of a “qualified investor” to allow individuals to participate in small business investment activity.

While other crowdfunding sites, like Kickstarter, also allow individuals to fund startups, they don’t receive monetary returns on their investments.

But recent reports pointed to the muted performance of investment levels. Some analysts, reports said, estimate that about half of the investors participating in crowdfunding rounds for small businesses are friends and family members, suggesting that the general public is getting left out of the game. This could be because they are unaware of the opportunity to invest or because they are taking time to see how SME crowdfunding evolves in its first days.

As of Wednesday, the AP reported, 24 businesses listed on one crowdfunding site, Wefunder.com, have collectively raised less than $3 million.

“It’s going to take time for people to know it’s possible for them to get into it,” said Wefunder Cofounder Nick Tommarello. He added that social media will likely help these startups raise awareness of their crowdfunding campaigns.

Reports said some industry players expect individual participation in SME crowdfunding to increase with time as the word gets out. Whether that will impact every business looking for capital, however, is unclear.

“Because crowdfunding is new, it’s hard to know if or when companies without the mass market appeal of a brewer or entertainment business will start drawing interest,” the AP wrote.