Crowdfunding: Globally financing small business one person at a time

Entrepreneurs are masters of thinking outside of the box (the good ones anyway) and that is an especially useful skill when it comes to financing all of their incredible ideas. With bank purse strings still tight from the series of unfortunate economic events in the past 5 years, start up business are looking outside the typical financial institutions for money. Now they’re asking you!

Crowdfunding is a community investment effort in which entrepreneurs, artists, writers, politicians, and the like, ask the community to financially support their efforts. It’s part social investment and part good ol’ fashioned donation. Unlike getting a bank loan, there is no pay back and no interest. Unlike having a venture capitalist invest, donors do not own any stake in the company/artist/etc.  However, unlike simply asking for money, there’s an expectation that by “investing” in this effort, the community at large will benefit. So for instance, if you have the next great invention and we as a community fund it, we expect that the community will be somehow enhanced by your success.

It’s a pretty old concept but in recent years the prolificity of the internet has given crowdfunding the shot in the arm it needed to take off on a global scale. Personal websites and blogs have the benefit of speaking directly to their target audience because hopefully they already have a fair amount of traffic. There are also sites dedicated to this purpose like Kickstarter and Indiegogo. (for more sites check out this list) Here, entrepreneurs set a target amount that they’re trying to raise and begin campaigning to reach it. People who are looking for great ideas to help out can browse the site and find projects that they’d like to fund. The donor makes their pledge and if the goal is reached, the entrepreneur gets the whole amount. The benefit in using these sites is that donors are assured of the projects legitimacy and the project gets more potential visibility. On the downside, many sites take a small percentage of your donations and if the goal isn’t reached- no money for you.

In addition to actually getting the funding necessary to produce a project, crowdfunding can be somewhat of a litmus test for just how your idea will be received. If you can get people excited enough to give money to an idea for which they haven’t even seen the final product, you’ve demonstrated consumer support- which can be a nice bargaining chip with trying to secure other investors. Now these donors feel connected to your effort. They’ll follow your progress to see how you’re doing. They feel like they’re a part of your team and will potentially tell others. We love stories of the underdog’s triumph and feeling like we gave a little push to a little engine that could resonates with the scrappy fighter in all of us.

So if you’re looking for financing options (and let’s face it, who’s not?) you might want to consider this grassroots take on fundraising while it’s still the hot new thing.