Crowdfunding Fills Gap for Investors and Companies
By Rory Eakin, COO of
NEW YORK ( TheStreet) -- Investors have struggled to generate steady returns in the public equity markets since the financial crisis began, with 28 negative months and only 32 positive months on the S&P 500 since October 2007.
And despite a U.S. economy that arguably has stabilized over the last 12 months (growth remains elusive), the equity market continues to be unpredictable. Austerity in Europe, elections in the U.S., and politics in the Middle East seem to drive sentiment far more than company fundamentals.
Investor anxiety in the public markets continues to push capital out of traditional equities. In fact, according to the Investment Company Institute, U.S. public equities saw a net outflow of approximately $77 billion in the first eight months of 2012.
Investors are increasingly hungry for alternative assets, particularly private investment opportunities.Equity-based crowdfunding platforms like
Asset-Light Business Models: Many consumer products businesses are simply marketing machines -- strong brands with practically no hard assets. A contract manufacturer produces and packages the products. A third-party sales team works with retail accounts to gain distribution (usually on commission). And an external logistics team manages the distribution of the products from the contract manufacturer to the customers.
As a result, these businesses often generate high return on invested capital and require limited funding once they get off the ground. They also don't usually require Series A, B, C, and D rounds before profitability. And, as outlined below, these companies simply need equity crowdfunding to help them take that first step.
Because less money is needed in subsequent rounds, there will be less dilution for you, the investor.
Inefficient Market: Small consumer products businesses are not sexy. At least not in the way that knocks down the doors of Silicon Valley's venture capitalists. "Software as a service" (whatever that means) is all the rage in start-up land these days -- and for good reason, given the performance of businesses like
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