NON-EQUITY CROWDFUNDING CHANGING FASHION BUSINESS
Non-equity Crowdfunding has been one of the best ideas for every growing business nowadays. A lot of companies have received real benefits thanks to this practice. There are two types of non-equity crowdfunding: reward-based (e.g. Kickstarter) and revenue-sharing (Crowdholding). Small businesses can raise capital by offering a % of future revenue for a certain period of time, something like a dividend. In this article, we will explain a little how non-equity crowdfunding has helped in the growing of fashion industry, and also share some thoughts regarding if this activity will keep bringing benefits over the next years. Let's start and read carefully then:
Read also: Alternative Finance for Small Business
IS CROWDFUNDING GOOD FOR THE FASHION INDUSTRY?
As you may be thinking, fashion sales have increased by 640 percent to more than 34,000 units in the last years. But to help fuel in the industry growth, Lynn and Epstein, which are in fact two famous persons on the business in the United States, needed to raise more capital. (As a direct-to-consumer label, customer acquisition is a critical — and expensive — main point of the whole business.)
However, instead of turning once again to venture some capital firms or credits from banks, the co-founders decided to launch a campaign on equity crowdfunding platform SeedInvest, a famous crowdfunding foundation which allows companies to raise some lots of money from Internet users from all around the world.
ARE YOU INTO THE FASHION BUSINESS? HOW ABOUT TO TRY CROWDHOLDING?
Over the last decades, US regulations forbid non-accredited investors — which are those with a net worth of a quantity which represents less than $1 million and who earned less than $200,000 every year for the last two years — from making equity investments in early stage companies and businesses, which are inherently risky, on the grounds of investor protection and so.
(On popular crowdfunding sites like Kickstarter and other ones, people who contribute funds are usually rewarded with giveaways like POP material, t-shirts, but do not acquire equity in the companies they support.) But in June 2015, in response to some hard criticism that ordinary investors were being locked out of the start-up boom of growth strategies, the US Securities and Exchange Commission (SEC) implemented Title IV of the JOBS Act, which, among other things, now allows non-accredited individuals and other companies to invest in early stage businesses.
Lynn and Epstein have posted their pitch on SeedInvest in September 2015 and, so far, DSTLD has obtain a benefit of more than $9.4 million worth of “indicated interest” from individual investors and some companies. Whether or not that interest turns into actual cash remains to be seen yet: not only do these would-be investors still need to make real commitments and some other work, but DSTLD still needs to determine just how much equity investors will receive from this practice. Contrary to equity crowdfunding, crowdholding gives small business access to capital without loss of control, allowing them to share future revenue instead. Crowdholding allows your best customers to participate in the brand story in a really profound way. They can be evangelizers of the product.
There is no doubt that crowdfunding is in fact a powerful concept to make grow your business
But one that has rarely worked in practice for fashion labels aiming to crowdfund their growth and so. Indeed, while most of the companies are projected to raise $34.4 billion in crowdfunded investments in 2015 and 2016 respectively, according to research and advisory firm Massolution, just a sliver of those companies which are using crowdfunding operate in the well-known apparel sector.
Of the 93,546 projects successfully funded on Kickstarter since the platform launched amongst some others, only 3,163 (or 3 percent) have been fashion-related or have any relationship with the fashion business world. And while the success rate of technology-related campaigns (20 percent) is actually lower than that of fashion-related campaigns, believe it or not (24 percent), technology projects have successfully raised a total of $297 million, which is significantly more than the $59 million raised by fashion projects from all around the country .
But for many proponents of the idea and approach, Title IV of the JOBS Act — and, more recently, Title III of the same regulation area, passed by the SEC on October 30, which makes it even easier for early stage startups and some little companies to raise money from non-accredited investors — have changed the prospects for non-equity crowdfunding in fashion business world.
To be sure of all of this matter, not everyone is pleased with the new rules of growth strategies in the United States. Companies wishing to raise under $20 million dollars will have to submit to review or be reviewed by US state governments and Crowdholding is concerned that these authorities will charge a big amount of exorbitant fees and bottleneck the whole process.
New rules for crowdfunding, which are set to go into effect on January 29, 2016, have undoubtedly created an incredible new momentum for both crowdfunding platforms and individual companies and businesses aiming to crowdfund their expansion and keep growing.
Should crowdfunding be a little bit less regulated?
There is no doubt for us that crowdfunding is one of the best ideas to expand a business nowadays. The thing is that this is turning into something bigger than expected in the first place, and now there are a lot of laws and regulations for the whole practice. Maybe the thing is to regulate this operation so a lot of companies could join on it (or decide not to do it) without being in the middle of an unfair game.
We think crowdfunding must be free from a lot of those regulations. In fact, crowdfunding aims to ask for the help of a lot of possible new customers from all around the world, by asking for help with an outstanding advertising campaign. Of course, there is a lot of people out there who does not want to be into the fair game, and maybe that is the cause and reason for a lot of new regulations for crowdfunding nowadays.
Please do not hesitate in contacting us if you have any questions or concern regarding this topic. We will be very pleased to bring you any helpful additional information on this matter.
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