With the immanent introduction of investment crowd funding in the USA, some question the future role that the traditional or pledge version of this form of e-commerce will have to play in the coming months. Whilst the risk profile of crowd fund investors is less than traditional investors, they still have a general aversion to risk. Those supporting crowd funding projects by way of the pledge model are driven by different motivators and it is this that will allows pledge model crowd funding to continue to flourish (if not exponentially increase) as a feeder channel to investment crowd funding.
Project creators employing the pledge model version of crowd funding to raise capital for their projects utilize a different strategy with a completely different set of motivators to those seeking investment. They do not need to demonstrate a return on investment or articulate any exit path for their supporters. They also don’t need to give away equity in their idea or their company. In such a cases, project creators are able to engage support early while the concept is still being worked up. Pledge model crowd funding is perfectly suited to such early stage, high risk funding, and is great for financing the securing of I.P. or prototyping, proof of concept trials, or engaging the skills and knowledge required to get the concept worked up to a more robust commercial offering.
Supporters of pledge model projects are motivated by other inducements that traditional investors. Traditional investors want an ROI, and an exit path. Those that pledge their backing to pledge model projects are primarily driven by one or more of three motivators – they know the project creator and want to support them, they are passionate about the cause and want to see the outcome realized, or they want to get one of the cool rewards in return for their pledge. As the expectations are totally different to that of a traditional investor, the pledge model is well suited to gain involvement and engagement without the customary risks associated with investment.
The pledge model was disruptive technology when it first started to gain global popularity just a few years ago – Why would anyone pledge without getting a return? Nowadays is a proven and accepted model for early stage capitalization for smaller tranches of seed capital. It has carved itself a niche as pre invest mechanism prior to concept, creator or company being completely ready for full commercialisation. With the imminent launch of investment crowd funding, the current pledge model is not threatened, but positioning to ride the wave investment crowd funding is expected to bring, with the pledge model still offering the best option for early stage seed capital for inventors, entrepreneurs, and startups.