Crowdfunding Increasing in Popularity – Why Now?
Estimates for annual crowdfunding transactions
go as high as $500 billion annually compared to 2011’s $1.5 billion
(anticipated to be $3 billion in 2012). If crowdfunding even begins to
approach that scale, it will completely change the landscape for
start-up financing.
This is what a post at Forbes.com noted in October 2012. In fact, a July 2013 CNNMoney.com post
specifically cites that there are now over 600 crowdfunding platforms
worldwide and the industry reached $2.7 billion in 2012. Pretty close to
the Forbes.com 2012 estimate.
So, what is it about crowdfunding that makes it so popular and why now?
Basic Overview of How Crowdfunding Works
In general, crowdfunding
allows entrepreneurs to accumulate capital funding for their business
or project by tapping into multiple small investments from a large crowd
of individuals. The investors learn about a project by visiting crowdfunding websites, such as Kickstarter.com and Indiegogo.com,
a few of the more popular sites. The actual amount of financing an
entrepreneur receives is dependent on their ability to market their idea
properly.
The basic crowdfunding steps are easy.
Entrepreneurs choose a crowdfunding website. Next, they upload a
description of their idea or product along with a business plan, how
much money they need to raise, and what ‘investors’ (known as funders or
backers) receive in return for their investment. Sometimes funds are
donations. However, in general funders expect some sort of non-financial
reward, as getting equity stake is not yet legal..
Funders have several options, so it’s up
to an entrepreneur to build a case for their idea. The amount each
funder contributes is up to them. The crowdfunding site acts as a
go-between, holding the funds in an account pending transfer to the
entrepreneur or return to funders if the project never moves forward.
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