Is it conceivable for a start-up to use crowd funding as a pre-cursor to going public?
I am a serial entrepreneur and my latest venture called NextRX led me into a whole new area for me, namely the burgeoning MMJ (medical Marijuana) industry. Why? Because there is a great need for a patient management system that is designed first and foremost with the patient interest in mind rather than the dispensaries. We developed an app (currently in beta) called RX-Pass Mobile which allows patients to find a recommending physician, register in the system and then locate the nearest dispensary and check the menu to order for pick-up or delivery (when available).
When investors invest in start-ups they typically have to wait 3-5 years to get a return on their investment via the business being acquired or going public. That's a long time. Because the industry is still somewhat disreputable, all cannabis related public companies (except one) are listed on the OTC (Over The Counter) market which has much lower listing requirements.
I believe this represents a whole new kind of opportunity where a start-up that has established its team, concept, prototype and proof of concept can raise a substantial round of funding via crowd-funding with the express purpose of not only developing and releasing their product but concurrently preparing to go public via a reverse merger within 6 months. The result of course would be a relative liquidity event for the initial investors in record time.
I would like to get constructive feedback from the community on this decidedly unorthodox model. For those hardy souls that want to see more we prepared a pitch deck video. We look forward to the feedback.
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You ask good question. The answer is more about WHO is investing during crowdfunding stage:
As you know, most entrepreneurs looking for funds have almost no money to invest themselves, beyond the 5,000 to 10,000 of their savings. They will eventually go thru a several rounds financing approach, before going public.
By now, a successful crowdfunding campaign raise small amount of money (below 100,000) that will act as a leveraging point for a call to higher funding: It gives a first feedback and helps convincing those investors. Nobody knows where the crowdfunding expansion will drive us, but I fear it will hardly go beyond these amounts, even if it will be more and more often involved in business creation processes over the world.
Crowdfunding is about personal investment on "likable" projects and people, therefore, small amount of money on a reachable target.
See this French project that is about to complete: http://www.sparkup.fr/deucalion/.
Deucalion raised more than 60K€ with 60 investors (average is then 1000 euros per investor) and filled more than 80% of the target.
Beyond 20.000 USD, investors are professionals and have different profile, requirements and network. They are not looking into crowdfunding campaigns, or at least to contact entrepreneurs who succeeded in their crowdfunding approach.This is why a second round toward Venture capitalists is a usual step toward IPO for start-ups.
See this interesting timeline from 100ventures.com - crowdfunding stage can be located near "Angel investing", depending on the size of your project.