Access to capital markets is becoming
increasingly practical for start-ups nationwide.
Crowdfunding is an innovative way to raise funds from a
diverse range of investors of any size.
Over the past few years, platforms like Kickstarter Inc. in
NYC and Indiegogo, Inc. in San Francisco have significantly
reduced barriers to funding for small entrepreneurs.
Traditionally, small inventors and product creators struggled
to bring their innovations to market because they had no
exposure to capital markets.
More recently, online funding platforms have emerged that
allow small entrepreneurs to market their products to
investors on a micro-level. In 2008, the number of
crowdfunding platforms worldwide increased by 38% in
comparison to the previous year. That growth rate
continued to climb year-over–year until it peaked in 2012 at
60%. Since that time, total funding volume has reached
over $34 billion.
Other recent developments are equally encouraging for both
start-ups and investors. Startups that develop products
and improve processes are good candidates for the Research and
Development (R&D) Tax Credit which was recently amended by
Congress in a favorable way for taxpayers.
The R&D Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
criteria:
New or improved
products, processes, or software
Technological in
nature
Elimination of
uncertainty
Process of
experimentation
Eligible costs include employee wages, cost
of supplies, cost of testing, contract research expenses, and
costs associated with developing a patent. On December
18, 2015, President Obama signed the bill making the R&D
Tax Credit permanent. Beginning in 2016, the R&D
credit can be used to offset Alternative Minimum tax and
startup businesses can utilize the credit against payroll
taxes
R&D Tax Credit For
Startups
The new federal tax law is extremely
beneficial for startups. For the first time ever, a
qualifying startup can use the credit against $250,000 per
year in payroll taxes beginning January 1, 2016.
Essentially, with the new startup provision, companies can
claim the credit even if they do not pay income tax and
regardless of their profitability. The chart below
demonstrates the dollar value of the tax credit for a startup
that employs an engineers and technical people.
Chief Engineer Salary
$200,000
2
Plant Managers
$300,000
15
Engineers/Technicians
$1,500,000
Prototype
and Software Consultants
$1,570,000
Total Qualified
Research Expenses:
$3,570,000
Total R&D Credit
Value (1 Year)
$250,000
Total
R&D Credit Value (5 Years)
$1,250,000
Industry
The crowdfunding industry is expanding
rapidly. In 2010, global crowdfunding platforms
processed $880 million in contributed capital. In 2012,
$2.8 billion was transferred across crowdfunding
platforms. By 2014, that number had swelled to $16
billion. For 2015, contributed funds are expected to
exceed $34 billion. The World Bank recently estimated
that crowdfunding would reach $90 billion by 2020.
However, if the trend of doubling year over year continues,
crowdfunding could reach $90 billion even sooner, by 2017.
The largest global crowdfunding market is by far North
America. In 2014, North America led the world in
crowdfunding volumes, growing by 145% and raising a total of
$9.46 billion. Asia was a distant second at $3.4 billion
and Europe came in third at $3.26 billion. As of
this writing, the United States has at least 191 crowdfunding
platforms. The United Kingdom is in second with
44. The chart below demonstrates the global crowdfunding
increase since 2012.
Crowdfunding Sites
Kickstarter Inc., in New York, is one of the
most well recognized crowdfunding sites on the market.
As of this publication, over 10 million people, from every
continent on earth,
have backed a Kickstarter project of one type or another. Creators use the platform to find the
resources and support they need to makes their ideas a
reality. Those ideas
include everything from filmmaking, design concepts across
varying industries, and innovative technology solutions.
Furthermore, New York itself is becoming an increasingly tech
oriented economy.
Tech companies are drawn to this region because it offers easy
access to funding, local university research labs, and an
increasingly broad based tech-oriented community.
Indiegogo, Inc.
is an international crowdfunding website founded in 2008 and
headquartered in San Francisco. Generally, the site
allows people to solicit funds for almost anything from tech,
to film to small businesses, and musical
entrepreneurship. The company brands itself as the
largest global site for fundraisers. Their market
includes anyone who has an idea and wants to raise funds to
finance their goal. Currently, fifteen million unique
users from around the world visit their site on a daily
basis.
-- Crowdsource
funding candidates should consider disclosing
how much of the $250,000 per year in R&D
Tax Credits they intend to generate.
--
Crowdfunder, Inc. in
Los Angeles is a platform for raising investments. It
has one of the largest and fastest growing networks of
investors. Recently featured on Fox News, one company
who utilized Crowdfunder, Oculus VR, LLC, which develops
virtual reality products, recently, raised $2 billion from
Facebook after debuting on the Crowdfunder website.
Crowdfunder offers equity crowdfunding from individuals,
angels, and venture capitalists, and was also a leading
participant in the JOBS Act which provides supporting
legislation for crowdfunding operations.
Appbackr, Inc., in
Palo Alto, California is a crowdfunding platform for
comparing, identifying and exploring mobile apps. Their
market is based almost entirely in this niche
community. Their mission is to index the world’s
apps, enabling app users to make informed and inspired
decisions, and making apps accessible to everyone through the
App Anatomy™ Project.
AngelList, in San
Francisco, brands themselves as an organization that makes
fundraising efficient. As of this publication, they
raised at least $400 million for at least 765 startups that
are listed on their website. When they first debuted,
they did not brand themselves as a crowdfunding platform
because initially they catered to venture capitalists.
More recently, however, they have begun expanding their scope,
funding a growing number of top tech startup deals in a
variety of ways.
Prototypes
Many entrepreneurs use crowdfunding sites
to market newly developed products to investors. Central
to most startup marketing strategies is a focus on prototype
development. Most startups that develop products display
their prototypes on crowdsourcing sites. Investors are
generally more willing to invest in products when they can
actually see the product, or the prototype. Some
startups even make public their design specifications.
Van Den Nieuwenhuizen, from Sydney, Australia, is a technology
consultant for many Fortune 500 companies who designed a
portable Bluetooth speaker and had this to say about his
prototype:
“Once my partner and I had a
design we liked, we submitted it to some design blogs. The
response was very positive, with people asking how they
could buy it, and all we had at that point was a rendering.
We made our first prototype with a trip to the hardware
store. It took us a year of looking in the U.S. and Asia to
find the right manufacturer. Even if you don’t have a
prototype yet, you can release drawings or renderings on
Facebook and Twitter. You get validation of your idea while
building an audience and momentum for your crowdfunding
launch.”
The media likes prototypes, too. Many startups on
crowdsourcing platforms report that the best way to generate
publications is to send a prototype to the analysts and
writers. The vast majority of these professionals will
not write anything about the product if they cannot observe it
in real life. Kickstarter even offers advice for proper
prototype treatment including the following:
When it comes to projects that
manufacture and distribute hardware, gadgets, and other
products, it’s important to make sure backers know what
stage of development the project is in.
Do show backers a prototype.
Provide backers with a realistic
sense of where the project stands — including what’s been
accomplished so far, and what work remains to be done.
If your project will involve
manufacturing gadgets or other products, we ask that you
show as much as you can about how you're going to do that,
including things like a production plan, an estimated
schedule, and any other details you can provide for
backers.
Projects that involve the
development of physical products must feature explicit
demos of working prototypes. While you can run a project
focused on the creation of a prototype, you can't offer
the product that is under development as a reward.
Prototypes are a bit different from sketches and generally
represent the product at a more advanced stage of
development. Of course, the investment in the prototype
is larger than the investment in the sketch; however the
prototypes also create more value. Investors that can
explore tangible products with all their senses are more
likely to invest in them. Rather than imagining a design
concept or simply observing a drawing, they can actually see
that the product works as intended and that the entrepreneur
has invested the time and money to actually develop the
product.
3D Printed Prototypes
3D printed prototypes
are a revolutionary development for inventors and product
creators. With 3D printers, it is now possible to
develop complex products from the concept stage to a working
prototype in a very short time period. Many
prototypes have tiny, complex mechanics that would otherwise
be difficult to construct using small hand tools. 3D
printing saves time and money because prototypes do not have
to be assembled, which can often be a tedious process.
Instead, the 3D printer makes it so that the product functions
as one completely whole and complex design.
Conclusion
Crowdfunding is becoming an increasingly practical way
of raising money for startups across all industries,
particularly tech-oriented businesses. New federal
Research and Development Tax Credit legislation provides a
boost to startups that can now use the credit to offset up to
$250,000 per year in payroll taxes effective January 1, 2016.
ickstarter Inc., in New York, is one of the
most well recognized crowdfunding sites on the market.
As of this publication, over 10 million people, from every
continent on earth,
have backed a Kickstarter project of one type or another. Creators use the platform to find the
resources and support they need to makes their ideas a
reality. Those ideas
include everything from filmmaking, design concepts across
varying industries, and innovative technology solutions.
Furthermore, New York itself is becoming an increasingly tech
oriented economy.
Tech companies are drawn to this region because it offers easy
access to funding, local university research labs, and an
increasingly broad based tech-oriented community. 
Indiegogo, Inc.
is an international crowdfunding website founded in 2008 and
headquartered in San Francisco. Generally, the site
allows people to solicit funds for almost anything from tech,
to film to small businesses, and musical
entrepreneurship. The company brands itself as the
largest global site for fundraisers. Their market
includes anyone who has an idea and wants to raise funds to
finance their goal. Currently, fifteen million unique
users from around the world visit their site on a daily
basis. 
Crowdfunder, Inc. in
Los Angeles is a platform for raising investments. It
has one of the largest and fastest growing networks of
investors. Recently featured on Fox News, one company
who utilized Crowdfunder, Oculus VR, LLC, which develops
virtual reality products, recently, raised $2 billion from
Facebook after debuting on the Crowdfunder website.
Crowdfunder offers equity crowdfunding from individuals,
angels, and venture capitalists, and was also a leading
participant in the JOBS Act which provides supporting
legislation for crowdfunding operations.
Appbackr, Inc., in
Palo Alto, California is a crowdfunding platform for
comparing, identifying and exploring mobile apps. Their
market is based almost entirely in this niche
community. Their mission is to index the world’s
apps, enabling app users to make informed and inspired
decisions, and making apps accessible to everyone through the
App Anatomy™ Project. 
AngelList, in San
Francisco, brands themselves as an organization that makes
fundraising efficient. As of this publication, they
raised at least $400 million for at least 765 startups that
are listed on their website. When they first debuted,
they did not brand themselves as a crowdfunding platform
because initially they catered to venture capitalists.
More recently, however, they have begun expanding their scope,
funding a growing number of top tech startup deals in a
variety of ways. 
