Move over banks, stock market and venture capitals. Now is the turn of crowdfunding. Modern method of crowdfunding, though has been in existence since 1997, once again attracted media attention with the launch Lammily doll, the competitor to Barbie doll. It is stated that Nickolay Lamm , the artist cum promoter, raised an amount of $ 5,00,000 through crowd funding, to convert his idea to reality.
What is crowd funding?
Investors and banks are, now a days, more critical about assessment of various risks associated with a venture. It is difficult for an entrepreneur to raise capital or borrow money to carry on with his project, unless the idea turns out to be a splendid one during their scrutiny. Unfortunately, the judicious and meticulous scrutiny by bankers and investors ends up with heart burns for entrepreneurs. If at all he overcomes all hurdles, he may end up with huge financial and personal liability, in case of failure of the project.
What is the remedy?
Become smarter than bankers and investors and find out another source for raising funds. Purpose of money is the same whether it is from a single source or different sources. Crowdfunding, in short, is the method of raising small funds from multiple investors over a small period of time, usually over internet. If you want to launch a product, prepare your prototype, approach a crowdfunding website, raise the fund from a large number of small investors, fulfill your dream and reward the investors.
Crowdfunding is never restricted for products alone. There is no end to the list for which you can raise money through crowd funding. It can be for product, project or service. The purposes can be charity, book release, documentary or feature film production or even political campaign. What matters is the idea. Rather than the financial viability, the brilliance of the idea is assessed. Pitch the idea well, your success rate of raising the amount will be higher.
There are many crowdfunding sites and major among them are kickstarter, indiegogo, tee spring, causes and giveforward. Artistshare was the pioneer and it was launched in 2003. Remember, this service is never free, but for a fee.
Is the crowdfunding ‘donate and forget’ for the investors? No. There are three types of crowdfunding:
Reward based funding: The investors receive tangible rewards from projects.
Peer to peer lending: Similar to a loan, the investors receive back the amount with some interest.
Equity Based funding: The investors get equity in the project in proportion to the investment.
The beauty of crowdfunding is that the investors do not expect anything in return, but do invest as they like the idea or project. Crowdfunding investors are good Samaritans. For them, it is fulfillment of own dream. The challenge before you is to be thorough with all aspects of your project. In short have a good idea, prove your commitment, raise the fund and fulfill your dream.
Just for statistics, the industry size of crowd funding was $ 1.5 billion in 2013 and it is still evolving.