Sunday, February 9, 2014
Crowdfunding Campaigns -- Will They Become the Criteria for Loans in the Future
I recently spoke about the additional benefits of crowdfunding with Broderick McClinton of EquityEndeavor a new portal focused on Austin and New Orleans. It's a rewards site similar to Kickstarter, despite the name. He indicated he plans to change the name to match their method of crowdfunding.
We discussed the concept that a crowdfunding campaign can tell one a great deal about a startup or growth company. If the campaign has a clearly defined product, a demand from the market, and funding from backers, then it's probably a strong company. On the other hand, if the campaign doesn't receive any interest from backers then it's probably going to have a hard time making it in the market.
In fact, lenders could use the results of a crowdfunding campaign to determine if the startup should receive a loan or not. A campaign clearly outlines the core product/service. Market demand can be determined by the fund raise trajectory -- how much and how fast the raise take place. Finally, did the startup deliver on their promise from the campaign. The last one determines if the company can execute on a project.
As the business world moves transactions to performance-based models, this is another example of "prove to me you can do it and then I'll do my part." In working with investors, I found they over weight what they see entrepreneurs do while on their watch and underweight whatever the entrepreneur did previously. In the same vein lenders are trying to determine what the startup can do currently and running a crowdfunding campaign while on their watch is a great way to determine ability to payback rather than historical credit reports.
It's an interesting idea.