Executive Summary
Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the collective efforts of a large pool of individuals—primarily online via social media and crowdfunding platforms—and leverages their networks for greater reach and exposure. From tapping into a wider investor pool to enjoying more flexible fundraising options, there are a number of benefits to crowdfunding over traditional methods. Here are just a few of the many possible advantages: reach, presentation, PR & marketing, validation of concept, and efficiency. Some of the requirements of a good crowdfunding campaign are: Developing a good story as to how you have turned your idea into reality, the story behind your product, writing and shooting a unique video for your crowdfunding website, professional photos of the product, a company website to use as a reference for more information about the product and company, a monetary goal and lastly, familiarity with how the units will be priced. The history of crowdfunding began in 1997 when a rockband funded a reunion tour through online donations. Since then, crowdfunding online has expanded. Crowdfunding revenue itself tripled between 2009 and 2011 thus making it a billion dollar industry. In 2012, the Jumpstart Our Business Startups (JOBS) Act became law (also known as “the crowdfunding bill,”) aiming to lessen regulations on small businesses and legalized equity crowdfunding. This includes removing the ban on general solicitation that prevents entrepreneurs from publicizing that they’re raising money.The Fundable platform launched in 2012 to help entrepreneurs fund and grow their business through rewards and equity crowdfunding. Fundable was founded by serial entrepreneurs Wil Schroter and Eric Corl and is now among the many options entrepreneurs have to host their crowdfunding subject. There are 4 different types of crowdfunding: Equity-based, reward-based, lending-based, donation-based. Rewards Crowdfunding is the most common and feasible type of crowdfunding option. This type of crowdfunding involves setting varying levels of rewards that correspond to pledge amounts. A standard rewards campaign offers at least three levels of pledges/rewards. Rewards campaigns tend to work well for client-facing, tangible products who require less than $100,000 in funding and typically last for 1-3 months. Equity Crowdfunding is the exchange of actual shares in a private company for capital. In this form of crowdfunding, entrepreneurs can set investor caps, minimum pledge amounts, etc. as well as approve or deny investors who wish to view their business documents. Equity campaigns are typically several months or longer in length and fit well with startups seeking $100,000 or more in funding. Lending based crowdfunding allows entrepreneurs to raise funds in the form of loans that they will pay back to the lenders over a pre-determined timeline with a set interest rate. With donation crowdfunding, the campaigns amass donations without being required to provide anything of value in return. This type of campaign serves social causes and charities best. Donation campaigns are often 1-3 months in length and work well for amounts under $10,000. |