Several months ago, at South by Southwest (SxSW) Interactive, the yearly startup and technology event held in Austin, Texas, I had the opportunity to converse with the Markus Lampinen and Valto Loikkanen, cofounders of crowdfunding startup, GrowVC. I’ve been intrigued by this way of funding startups particularly as a potential option in Latin America where many countries still have an extremely nascent venture capital industry.
GrowVC has been making headway in a number of regions and have been building out their team in Latin America and provides a platform for connecting investors (most of these assign small amounts) and potential startups. One of the most popular crowdfunding startups has been Kickstarter, which focuses on funding creative projects. Similarly, Fondeadora is a company that recently launched in Mexico using similar model.
Indeed, though new, there has been some excitement building around this model. For instance, Latin American startup Nuflick is building a platform to fund and distribute independent films just as companies such as Slated in the states are planning on doing. It goes without saying that in capital starved regions such as Latin America crowdfunding opens up a host of options.
Nonetheless, this model is creating it’s own challenges in each country and the legislation that needs to be put into place to support it. Yesterday, I had the opportunity to speak with Cythnia Traeger, CEO of Pacific and an active mentor on entrepreneurship and advisor on topics such as crowdfunding. She is based in Washington D.C. and has been working with a number of senators to help establish some parameters for developing legislation around this new asset class.
One of the key issues being addressed is balancing the risks involved in crowdfunding versus the benefits. One lever to move in the mitigation in the risks involved is limiting the amount of funds that can be raised through this asset class and this is indeed an area that is being discussed. The Netherlands through their Dutch Authority of Financial Markets, has been one of the leading countries working on crowdfunding legislation.
This type of funding is providing one more source for businesses and individuals in developed countries. Nevertheless, for developing markets, crowdfunding might be the only capital available for certain enterprises. Hence, the impact can be even greater in these areas of the world, such as Latin America where capital is not as plentiful.