What is Crowdfunding?
Prior to the passage of the JOBS Act, it had been illegal for private businesses to offer equity to creators and inventors seeking funding for ideas and projects. Businesses could only offer equity to accredited investors. However, the recently signed into law JOBS Act changes the way artists, charities and startup companies can raise needed revenues for new ventures. Creators and inventors will be able to display text descriptions and video commercials about various projects on crowdfunding websites to the public. The goal is to raise monetary donations in the form of equity transactions from the crowdfunding website visitors viewing the posted information about each project. Some popular crowdfunding websites include Kickstarter, Indiegogo, Crowdfunder, GetFunded and SeedInvest.
How Does Crowdfunding Work?
Crowdfunding is a unique way to use Internet technology to bring creative ideas to everyone interested in supporting the project through online preorders or donations. Crowdfunding returns interest and money to project entrepreneurs. These entrepreneurs will acquire knowledge that will target selected audiences and assess financial risks. New businesses, projects and products will be able to experiment with new ways of media advertising. Crowdfunding promotes opportunity and opens the doors to the success of someone’s creative idea for many reasons besides the traditional profit motivation of venture capitalists. Local community projects that include art exhibits, skate parks and small events will benefit from the Internet exposure crowdfunding provides. New books, films, video games and television programs are all examples of large-scale projects that will benefit from exposure on crowdfunding platforms.
What are the Benefits?
Creative projects will be able to obtain funding without relying upon traditional investment initiatives. Creators and inventors will be able to obtain financing for projects on their own terms and will not have to compromise project ownership and creative vision. Crowdfunding is a promotional tool that will determine project success by measuring public opinion and helping project creators reach out to an audience. Crowdfunding saves time, money and energy by marketing an idea or project that the public needs and wants. Project creators will receive feedback that will help them plan, produce and market creative projects.
Crowdfunding is a platform from which to bring in revenue and awareness for products and services before the product has been sold or the service has been provided. It is a way to connect with potential customers and clients. There isn’t an equity loss and creators own their intellectual property, business entities and brands. Those supporting the project contribute merchandise and services in addition to spreading the word about the project through social interaction. Project supporters may serve as a focus group to provide valuable feedback that can help with spreading the word about the product, project or service. The most important benefit of crowdfunding is that it plays an important role in promoting creative expression and the success of projects that normally might not receive traditional funding.
Daryl is a serial entrepreneur. He launched StartUp Valley in 2012 to help startups generate funding through crowd sourcing.