The heck with banks that continue to keep their mattresses stuffed with cash and treat entrepreneurs as beggars at the door. Small businesses, creatives and non-profit groups have discovered crowdfunding as the means to the money to fund their entrepreneurial dreams.
Equity crowdfunding has been signed into law in the U.S., but, like all things government, the regulations are still being dragged through the bureaucratic approval process. In the meantime, creative crowdfunding projects are in full-swing. Hundreds of thousands of participants have already found funding from millions of backers.
Creative (or reward-based) crowdfunding sites like Kickstarter and IndieGoGo are two companies that helped draw early attention to the modern crowdfunding movement. These companies, and hundreds of others all over the world, provide the platform and the visibility for thousands of businesses to raise small to significant amounts of money for their projects in exchange for rewards for their backers. The success of these programs has been phenomenal.
- The Pebble Watch project raised $10 million for a customizable electronic watch.
- The start-up company with a closed-loop ecosystem raised $250,000 for the development of a fish tank whose residents provide the waste to fertilize the plants grown above it.
- A photographer with a passion for bugs raised $50,000 for her New York City art show.
- A non-profit artists group raised $5,500 to renovate their downtown Las Cruces New Mexico art studio.
Crowdfunding has been around for hundreds of years. One of the most famous crowdfunding projects was organized by newspaper publisher Joseph Pulitzer in 1884 when he asked Americans to donate the money needed to complete the pedestal for the Statue of Liberty.
Crowdfunding websites do a great job requiring that applicants demonstrate that they have good ideas and are accountable to their backers. Those who provide the funds are taking a risk, but the integrity shown by the owners of the projects has been outstanding. According to the Crowdfunding Professionals Association, in their review of $250 million in crowdfunding transactions, they couldn’t find a single case of fraud.
With the passage of the JOBS Act of 2012, investment crowdfunding will be an option for small companies needing capital. Small businesses, entrepreneurs and start-ups can use equity crowdfunding to raise money by selling small amounts of equity to many investors. This gives entrepreneurs the ability to fund their business ideas, expand their operations, and otherwise take their businesses to a new level without having to hand over control of their companies.
The government regulations are still being worked out, but investment crowdfunding rules should be formalized in the next few months.
Investment crowdfunding sites are starting to appear online. Rock the Post is a business social network site that connects entrepreneurs to funding parties, and provides a communication and accountability platform for the two sides.
Rock the Post wants to be ready to launch the minute the government gives the go ahead. The site has just gone live. While projects can’t yet be approved, those interested in participating in equity crowdfunding can start putting together their business plans.
The Crowdfunding Professionals Association is keeping watch on the crowdfunding industry. The group is working on a global crowdfunding education network to provide online classes and mentoring for crowdfunding participants. They’ll also stay on top of government and regulatory developments.
The most successful creative crowdfunding platforms have been around for less than five years, but their impact on small business has been remarkable. If you’re a small business owner or an entrepreneur, run a charity, or have any type of creative project that is in need of money, you’re passing up a great opportunity if you don’t at least have a look around the crowdfunding community.