How does an artist fund a new exhibit when they are already living on noodles? How does an author fund a project to release their work through eBook format? How does an entrepreneur get an ambitious business off the ground without taking out a risky start-up loan?
If these entrepreneurs and artistic souls are trying to accomplish something great in our modern world, they take advantage of the newest Web 2.0 money-generating strategy know as crowd funding. Sites like IndieGoGo, RocketHub and Kickstarter are just a few of the new sites that allow people to learn about new ventures starting up and make donations. These sites introduce the basic idea behind a start-up project while additional exposure is gained through social media sites like Facebook and Twitter.
The Value of an Idea
When an entrepreneur asks for a business loan they have to prove that they are a low risk borrower and that they have the ability to make the business a success. Most lenders and individual investors want to fully inspect a project and the person implementing the project before they decide they want to invest.
So, how likely is it that people will actually invest based on an idea presented over the Internet from someone they do not know and have never been personally referred to? This is a good question, but you have to remember that crowd funding requires individuals to make very small donations. They are not putting thousands of dollars on the line and they are not expecting anything financial in return.
Also keep in mind that the donations are typically given in exchange for a small gift from the company. They give a small amount of money in exchange for something that offers some level of value to them.
Crowd Funding is Easy to Manage
The ability to draw from an almost endless supply of potential investors and collect donations through online payment processors makes online crowd funding extremely easy to manage. Recording who invests and how much they invest is very easy through the records generated by the online payment processor.
Those who offer investors a reward that can be downloaded online can automate the entire process so they don’t even have to be online to collect funds and deliver the gift. This completely eliminates the complicated and expensive process of putting together large fund raising events, sitting by the phone to take phone calls from investors, and spending hours stuffing and mailing out envelopes. Everything is done online with a much wider reach to people from all around the world.
Crowd Funding as an Augmented Source
It does take some effort to use crowd funding successfully. The website needs to be well maintained, investors need to be communicated with at times, and social media sites need to be constantly employed to keep the funds rolling in. It also takes more time for the money to be accumulated rather than getting an instant loan for the full amount needed.
This is why many entrepreneurs or artistic spirits will start out using crowd funding as an alternate means of funding. This can be done by using crowd funding to support just one project or area of the budget. Crowd funding activities are then limited to supporting that venture while everything is funded through other sources.
Crowd Funding in the Future
It is very likely that most people (including large businesses) will be using crowd funding at some point in the future. There is some resistance to the idea right now, especially from other investors who feel it cheapens what they do. This is normal when something new hits the market. There is always some resistance from those who could be hurt if the new idea takes off.
Online commerce is also a rather new concept and it continues to evolve. Crowd funding is just the latest development to come out of it, but entrepreneurs are starting to make use of it more and more. The great thing about it is you don’t have to be widely known around the world to get the investments you need. Rather, it comes down to who you know and who you can reach out to through the Internet.
Internet use is growing and expanding and with it the opportunities to raise money online without risk or equity payments going out increase.