Local software may jumpstart crowdfunding

FORT COLLINS – Crowdfunding – a high-tech, online method for raising small amounts of start-up cash – is poised to reach multi-million-dollar levels worldwide, and entities in Fort Collins are ready to help it along.

Fort Collins-based Community Funded LLC is in talks with more than two dozen companies locally and non-locally, that could begin using its software platform, Empowered By CF, to launch their own crowdfunding sites, according to Community Funded cofounder McCabe Callahan.

While Callahan could not give details on exactly which organizations might be using his product in 2014, one university already has incorporated the platform.

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Colorado State University’s internal crowdfunding platform, Charge, is set to launch university-wide in January, according to Charisse Bowen, director of CSU’s Institute for Entrepreneurship, after a successful test run this summer using Community Funded’s software.

Crowdfunding allows companies or individuals to raise money through online donations in a set timeframe, usually in exchange for small “giftbacks,” which vary based on the cause and are usually some sort of merchandise or service from the company raising money.

About $8,500 was raised during the test, with two companies reaching their fundraising goals, Bowen said. During the test, investors were more likely to give money to a company that had an attainable goal.

“We learned that teams that set realistic goals made their goals,” Bowen said.

When the test run occurred, Charge was the first internal crowdfunding platform at a university, Bowen said. Since then, other universities across the nation have followed suit. Six of the organizations with which Callahan is working are universities, both inside Colorado and elsewhere in the nation.

Local businesses also are benefiting from using crowdfunding platforms that are not based in Northern Colorado. Two local theaters, Lyric Cinema Café in Fort Collins and The Kress Cinema in Greeley, have saved their businesses in the past year by using crowdfunding.

Both theaters used a national platform, Kickstarter, to raise money to upgrade their projectors to digital, allowing them to continue showing movies produced by an industry that no longer uses film. Together, the theaters raised $254,000 for new projectors and other upgrades.

Even when the platform isn’t local, people still like giving to local causes via crowdfunding, Bowen said, because of the bond created between the investors and the company that isn’t present with more traditional forms of financing, such as bank lending.

Crowdfunding “creates a community more than traditional financing,” Bowen said. The connection formed by giving to a business usually means that more people are motivated to visit that business or promote it via word of mouth, which pays even more dividends.

“An effective campaign is more valuable than just the dollars raised,” Bowen said.

A report called “Crowdfunding’s Potential for the Developing World,” issued earlier this month by WorldBank estimates that crowdfunding may become a $90 billion market worldwide in the next 20 years, led by platforms such as Kickstarter, which has tapped more than $814 million from 4.9 million investors.

Other estimates place the value of crowdfunding in the coming years even higher, according to Callahan, but the future of the industry depends on regulations pending at the Securities and Exchange Commission, he said.

The 2012 passage of the Jumpstart Our Business Startups, or JOBS Act, launched crowdfunding as a legitimate investment opportunity rather than simply a community fundraising tool, but the law also brought with it regulations for the budding industry.

The JOBS Act allows for investors to receive equity in companies, rather than simply getting small gifts in exchange for investment. This means increased risk and chance for fraud, which is where the SEC comes in.

In October, the SEC released proposed rules that would allow anyone to invest in startup companies without having to register with the SEC first, but concern over protecting “unaccredited” investors led to other proposed rules.

Unaccredited investors are those with annual income under $200,000 or net worth of less than $1 million, under existing SEC rules.

Rules for these investors are in a 90-day discussion period at the SEC, expected to end in mid-January.

The growth of the industry will vary depending on the outcome of the regulations, Callahan said, but crowdfunding is here to stay, no matter what.

“It’s a game-changer,” he said. “It’s not going away.”