Startups owners are turning to the innovative medium known as Crowdfunding to procure precious capital that is often the biggest obstacle for the greatest of new enterprises. The concept of Crowdfunding is to raise small amounts of money from a network of friends, family and new acquaintances who in turn receive shares of the enterprise.
Typically, Crowdfunding is raised through Internet platforms that reach out to pools of investors who are not as restricted as venture capitalists or angel investors. In the US, Crowdfunding regulations resemble regulations on hedge funds. These regulations are designed to protect unsophisticated, non-high wealth investors yet give these persons the ability to invest in a new startup of their choice.
Investing in startups is a high risk strategy that can yield excellent returns but can also result in disappointments or outright failures. While Crowdfunding appeals to the masses that tend to be unsophisticated, that is not the case for Venture capitalists or angel investors.
In the US, the SEC has determined that angel investors must have a net worth of no less than $1 million and must also earn at least $200,000 per year, not exactly everyman. Venture Capitalists often provide seed money for certain startups but always have defined exit strategies that recoup their investment in 3 – 5 years. Venture capitalists and angel investors usually prefer to see the direction the company is going before they seriously consider the investment.
Some entrepreneurs have been successful using Crowdfunding to get the business up and running and then seek out venture capitalists or angel investors. Without question, the entrepreneur will give away part of the control of the business with either a venture capitalist or with an angel investor.
Crowdfunding Success Stories
There are many Crowdfunding success stories but these are some of our favorites.
FORM1 – In their pursuit of an affordable, professional 3D printer, researchers at MIT turned to Crowdfunding and raised close to $3 million from more than 2,000 backers.
Pebble – The Pebble E-Paper watch with apps, iPhone, and Android is extremely popular. Pebble had 70,000 backers and raised $10 million in 28 hours through Crowdfunding.
Elevation Dock – Offering a better docking solution for the iPhone, Apple users flocked to this project and gave ElevationLab $1.4 million to create the dock of their dreams.
Amanda Palmer – Amanda Palmer set a Crowdfunding goal of $100,000 to help fund her record, art book, and tour with the Grand Theft Orchestra. She achieved her goal in 24 hours.
Forbes magazine listed the following Crowdfunding sites as the top five Crowdfunding sites but there are more.
Kickstarter – Kickstarter focuses on creative projects that raise donation-based funding. Projects range from new creative products to pre-selling a music album. This platform is not for businesses, causes, charities, or personal financing needs.
Indiegogo – Indiegogo concentrates donation-based fundraising campaigns for a broad range of pursuits, including music, hobbyists, personal finance needs, charities and more.
Crowdfunder – Crowdfunder is a platform for businesses with a growing social network of investors, tech startups, small businesses, and social enterprises. The company has localized Crowdfunding and investment to give the company more reach.
RocketHub – This platform specializes in donation-based funding for a wide variety of creative projects. Through the FuelPad and LaunchPad programs entrepreneurs can connect and collaborate for the success of a campaign.
Crowdrise – Crowdrise is a place for donation-based funding for Causes and Charity. They’ve attracted a community of do-gooders and fund all kinds of inspiring causes and needs.
If you have a startup, a worthy cause or an artistic project that needs funding, you might begin the funding process with a Crowdfunding source.