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Crowdfunding: New Source of Capital for Startups

Crowdfunding Community from The Startup Garage

A New Funding Source for Startups

Crowdfunding is the greatest funding revolution of the new millennium. It opens up opportunities for services and products, which a generation ago, would have never seen the light of day. Starting a business with unlimited funds is not difficult at all. Those who are lucky enough to win the lottery, inherit money or retire with a substantial nest egg can easily start their own business (if they are willing to invest those personal funds). But that type of business funding leaves a lot of people out of the game; those that don’t have money, those who are too young to have savings and those who can’t afford to risk their savings or retirement funds.

So, what happens to the risk taker, the person who doesn’t have a lot of financial backing, but does have that great idea? How does this person raise the capital to start a new business? In the past, the only way to raise business working capital was to ask friends family, dig into personal savings, home equity or ask for investors; and while all of these methods are feasible, there is a new way of acquiring the needed capital, and it’s called Crowdfunding.


What is Crowdfunding?

O.K. so when we hear the term “crowd” we think of a lot of people, and “funding” brings money to mind. So, when you join the two terms what you get is “money from a large number of people.” That’s what crowdfunding is all about; getting funds for your business by asking a large number of people to help. The idea is that you ask lots of people for a small amount of money. The concept is an easy one; it’s much easier to ask and give small amounts of money, than it is to make a large investment in a new business.


Why is Crowdfunding Different from Other Methods?

In the past, entrepreneurs looking for angel investors, had to ask a few people for very large sums of money. Through crowdfunding, a small startup or entrepreneur uses the Internet to contact thousands of people, explain the idea and motivate them to fund the project. So, instead of taking a loan out, asking for a large amount of money from a friend, or from a corporate investor, now, an entrepreneur only need list his project on a specialized crowdfunding website and promote it to everyone he/she knows through social media, blogs, websites and more. Crowdfunding sites allow startups to network online and ask for small sums of money to meet the needs of a project. It is much more affordable for 1,000 people to donate $10 to your cause, giving you $10,000 in funding capital, than it is for one person to invest the same amount of money.


Who Can Use Crowdfunding?

Crowdfunding is a new invention for a new paradigm, and the beauty of the concept lies in the fact that anyone can use it. Crowdfunding is a funding source that does not discriminate against age, gender or education. You don’t need to be considered a good investment by a lending institution; you don’t have to have savings in the bank; you don’t need to have equity in your home. You can be as poor as a beggar and still get the funding you need. All you really need is a “Great Idea” to participate.may have been around for a while, but the new administration is making every effort to encourage the new economy because start-up companies are beginning to illustrate what the creative new economy can do.


Who Is Eligible for Crowdfunding?

Non profit organizations have solicited funds from the public for a long time, but the concept hasn’t ever been extended to other kinds of companies. Today, all of this has changed, there are now more, liberal laws that encourage this kind of investment, including ‘investment angels’ that can participate on a level that is greater than ever before. This funding source offers an opportunity for established companies to mentor and invest in small or large projects they find interesting.

So what type of entrepreneur seeks crowdfunding? Lets take a look at two examples:
Ian Kent, a building contractor, has a great idea for a micro sustainable house. However he need 50,000 to build his first home. By starting a crowdfunding project he was able to raise this and more.

Mary Jane Miller has an art installation to promote world peace. She needs $30,000 to send the installation on an International traveling show. By adding her needs to a crowdfunding project she is able to raise the money she needs.

It is about time that small creative entrepreneurs have the chance to realize their ideas and not have to invest so much time in the culture and business of money per se. Even if some of these companies don’t end up succeeding, the newer generation companies that become reality can build upon the knowledge gained from others for furthering their successful ventures.


Future Outlook for Crowdfunding

The government calls this the Jump-start Our Business Startups Act, and though the concept has been around for awhile, many of the states you would never imagine to think as open enough to consider such an unusual idea, are getting into the act. The Southern States in particular are showing a strong interest in these formative ideas which may transform the new economy.

If you are an entrepreneur, thinking of starting a business, keep in mind this form of business design; one that is talked about in the most reputable business journals and blogs. It may even give you new ideas as an established company, a way of investing in future ideas and products you may have never considered.