Crowdfunding, is a new way to raise money for small businesses. After the recent passage of the JOBS (Jumpstart Our Small Businesses) Act and the rise of websites such as Kickstarter.com and Indiegogo.com, Crowdfunding has become a popular way for ventures to raise money without having to deal with the traditional difficulties of Venture Capital funding.
What is Crowdfunding?
Crowdfunding is a way of raising money for a specific project using the internet and social networking technologies to get small amounts of money from a lot of people (Therefore, a lot of money). Your friends, family and fans may each only be able to give a small amount, but if you can convince enough people to donate, or several mega donors plus many small ones, you can reach your funding goal.
How does the Crowdfunding process work?
An artist, small-businesss, etc. sets up a page online, typically through a platform like Kickstarter or IndieGoGo. Their page provides a clear overview of the project, the amount of money sought and exactly what it will be used for. (ex. An iPhone App) Also the business may provide a video about the project or other examples of the work such as a Website URL or a song to listen to. Supporters should be able to donate money simply and easily through this page (both Kickstarter and IndieGoGo make this easy). On the project’s page, the artist should also offer incentives and rewards to supporters at different levels (ex. a donation of $25 will get the supporter a T-Shirt).
After the page is created the Small Business or Artist reaches out to their entire network(s), using Social Media and asks them to give money to the project and to spread the word to their networks. Hopefully, all these donations will add up to enough money for the artist to complete her project.
Regardless if the artist or business completes their monetary goal they get to keep 100% ownership of her project. Crowdfunding is not the same as gathering investors who then receive equity in a company.
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