How to raise funds for your business through crowdfunding

How to raise funds for your business through crowdfunding

Originally crowdfunding was born of the Indie music genre for bands to get the cash to go on tours and for geeks to get cash to build robots and other inventions. But now because of the internet explosion, entrepreneurs are now raising cash through crowd sourcing on their own websites and through Facebook and other social media avenues. And it’s now perfectly legal to do so through crowd funding:

Back in 2012 the change to the US federal JOBS Act and the second part of the act in September 2013 meant that anyone who needs funding for a business venture will be able to market private share offerings publicly, using social media, websites, newspaper ads, billboards, and whatever other means they want, effectively ending an 80 year ban that stopped businesses announcing they were raising money this way.

Although the official line is; that start-ups cannot really as yet accept funding from non-sophisticated investors; the term given to people with over 1 million USD and earning 200,000 USD a year, this rule was brought in just after the great depression in the US (1929) where millions of people lost their savings when there was a crash on the markets, thus resulting in massive economic slowdown and hardships for millions of ordinary people.

Now however businesses and start-ups can openly advertise on their websites! The third part to the rule is expected in 2015 opening crowd funding to grannies and kids alike who just want to invest. Well herein is the quandary; if you were a start-up would you accept a million USD of small granny with a humble abode, knowing there is a risk she could lose everything?

To get your crowdfunding offer started you could: find out what you feel your business is worth, choose how much as a percentage you want to sell, then decide how much each share is worth, then you can advertise your share offer on your website, like my offer in Biz-find, and start the ball rolling between your friends and their friends. If you consider the average person can count around 5 close friends and 20 other people they know well, that’s 25 people, times 25 people =625 if each one of those 625 people gave you just ten USD you would have well over half a million bucks! So the initial approach is to advertise online and then approach all your close friends and your wider circle and if you have a great idea that could easily spill over to their friends.

The SEC of any country are probably not going to be too bothered about a few close friends getting together to raise funds for a friend! And also you could get that one email from one sophisticated investor who’s looking just for what you do with the exact money you need and maybe even fit you into an incubator model

***The rules to crowdfunding may be different across the world and you would be advised to check the laws of your country, my research is purely the US. ***

Regardless of the scruples, it has already spawned a massive industry online of websites that offer start-up funding, charities, and good causes, all looking to raise cash from the general public, with countdowns to the end of the offers, making a very effective call to action, seems this method of funding can only grow in popularity. I think the banks will be shaking in their fat cat slippers!

Indiegogo seems to be the largest of the new breed of crowdfunding websites, and is the 579th (According to Alexa 28/09/13) most popular website in the US. Other sites like PeoplesVC and WeFunder, are doing very well.

Despite the obvious issues that may arise regarding people with addictive natures finding a new way to get into trouble by ‘gambling online’ on small companies and start-ups, the general public are, in my humble opinion, more sophisticated in the finances of the world, and me telling them to seek advice before investing, not to invest amounts they cannot afford to lose, looking at many companies as a larger portfolio alongside safer options like cash and Government bonds, and be prepared to break some eggs along the way, and last but not least my very favourite advice from one of the top investment performers of the last twenty years: Don’t invest in things you don’t know a lot about, will all seem a bit obvious to most people!

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