Crowdfunding changes game for SMBs

On the third day of its Kickstarter crowdfunding campaign, video game console developer OUYA broke the $3 million mark.

By the end of their 30-day campaign, it's likely they will hit $10 million or more, and that's a significant amount for a crowdfunded business in early start-up mode. Granted, the overwhelming majority of crowdfunding campaigns are measured in the thousands and not in the millions, but we haven't even begun with equity-based crowdfunding yet. OUYA is simply pre-selling a product that's still in production as a means to obtain early financing. It will be at least December before the SEC puts the final rules in place, and crowdfunding really heats up, but once those new portals go live, those big numbers will become more common — but instead of getting a gaming device in exchange for your contribution, you're going to get a piece of the action.

With results like this, we must ask, has crowdfunding hit the mainstream already? Let's take a look. Before we can call anything "mainstream," we need four different things: public awareness, acceptance, easy access and a robust infrastructure, and at least a handful of early success stories. There's no question that we're already there on the latter front. On public awareness, while most people do understand that there is such a thing as crowdfunding, most still don't understand the nuances, or the difference between product- and donation-based crowdfunding like Kickstarter, and equity-based crowdfunding that will come later.

What about public acceptance? That's a bit of a mixed bag, and the excitement has been tempered somewhat by nervous Nellies like Rolling Stone's Matt Taibbi, who roundly panned equity-based crowdfunding and pretty much everything else in April's JOBS Act. The misguided sentiment there is that because there is the potential for something to go wrong, it probably will, and should therefore not be allowed at all. But by suggesting that we throw out the crowdfunding baby with the JOBS Act bathwater, those nay-sayers would kill off something that has the potential to make a big, and very positive, difference to small businesses that currently have no other options for raising capital.

Finally, "easy access" is already part of the equation, but only for the non-equity sites like Kickstarter. New sites like have already started to appear, providing a framework for equity-based crowdfunding, but by law, these can't become active until the SEC pulls the trigger. There are quite a number of these platforms popping up, but I'd look for a shakeout early on. Early dropouts will be the platform operators that focus mainly on the platform itself, but not on the ancillary services related to crowdfunding. Although the JOBS Act allows for the creation of platforms through which companies can launch equity-based crowdfunding initiatives (or "Initial Crowd Offerings"), there's a lot more to having a successful launch than simply listing on a platform, and the platform operators that take that extra step to provide a full range of support will be the ones with sticking power.

Crowdfunding may not strictly be "mainstream" yet, but it's well beyond the point of no return. Look for more of those multi-million dollar success stories in the near future. Eventually, venture capitalists, opportunists that they are, will want to get in on the act as well, and at least a few will either set up funds to pour money into selected equity-based crowdfunding ventures, or may even launch crowdfunding portals of their own. And while we should welcome VCs to the party, the good thing here is that the democratic nature of crowdfunding means that they won't be the only ones with an invitation. And that, precisely, is what is going to change the world.

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