Also called crowd financing and crowd sourced capital, crowd funding is nothing but a group raising money or non-monetary resources for people who could achieve something out of it. In other words, a company or individual presents a business idea to the crowdfunding cohort, and if the group is convinced about the idea, it invests or donates money so that the company or individual could realize the idea.
For instance, an entrepreneur could seek funds to start a business, and if the funding group finds the business idea interesting, the group would offer the money to the entrepreneur, typically via a third party. Crowdfunding is quite common online where there are websites dedicated to such funding activities. On certain websites, the fund seeker doesn’t get the money unless a good number of people come forward to contribute money. Let us take a look at the origin of crowdfunding and some crowdfunding tips.
Origin of Crowdfunding-Crowdfunding may sound like a modern concept, but it has been around for a few centuries now. In the 1700s, The Irish Loan Fund was set up by Jonathan Swift to offer loans to rural, low-income families. These families had little to no collateral despite being creditworthy. In the 1800s, 300 more crowd financing programs cropped up in Ireland. In 1852, credit unions came about, and in the year 1976, Grameen Bank was launched in Bangladesh by Dr. Yunus so that banking could become accessible for low-income group people.
Modern day crowdfunding came to light in the year 1997, when a rock band in the UK collected donations online to fund its reunion tour. This method of financing seemed promising and a website dedicated for crowdfunding was first launched in 2000, by the name ArtistShare. Thereafter, several such online platforms came to being and it was no looking back thereafter.
Rise of Crowdfunding Platforms
When people talk about crowdfunding, the names that immediately pop up in their minds are Indiegogo and Kickstarter. Not many realize that there are many other crowd financing companies as well, such as GoFundMe, PledgeMusic, Sellaband, Razoo, etc. These companies probably wouldn’t have been around if it hadn’t been for the JOBS (Jumpstart Our Business Startups) Act.
The crowdfunding industry received a major boost when the JOBS Act was passed by President Obama in 2012. This helped create a platform for ordinary people to exchange business funding for company equity.
As aforementioned, there are different crowdfunding companies, with some of them specializing in certain industries, having a ceiling for funds, and preferring a particular mode of reward for investors. For instance, some companies would like to see their aggregated investor pool get rewarded in the form of equity. Therefore, pursue a platform that suits your interests the best.
After zeroing in on a crowdfunder, decide the amount of money you’d like to raise. Remember, just because you’re being supported by a large pool of general investors, don’t go overboard with the money you ask. Most funding platforms promise investors that their money would be returned if a fund-seeking company doesn’t hit its target within a certain period. Therefore, make every money count.
Networking is among the most important crowdfunding tips. Indulge into networking (both online and offline) so that you grab more eyeballs and gain more traction for your project. Online networking is easy, but do not discount the power of real-world networking. The amount of trust and confidence you can build within people toward your project through a handshake is not possible online.