Crowdfunding, also known as crowdsourcing, is a collaborative agreement between large groups of people or businesses that are willing to invest money, time, and resources into an emerging business idea or project for others. The collaborative partnerships can be anonymous or known relationships fostered through a third party networking or social community. Crowdfunding requests initiate for a variety of reasons. The most common for business owners range from ideas to start a new business, to funding an existing business for growth, or funding for creative projects such as producing music or producing a film.
Types of Requests
Funding requests also known as, solicitations, are marketed through a variety of avenues, for example:
- A fund seeker could approach individuals, groups of individuals, or businesses for sponsorship, which in turn results in funding for their project.
- Requests can be fostered through agreements between the fund seeker and potential investors by offering exclusive benefits, rewards, or revenue in exchange for funding.
- Fund seekers sometimes gain funding by offering a certain percentage of the profits or equity in the proceeds.
- Other requests, unlike peer-to-peer funding, can be as straightforward as investors simply believing in the vision, funding the project, and seeking nothing in return for the investment.
Entrepreneurs faced with the challenge of proving their ideas in the traditional arenas of funding are doing all the homework and jumping hoops only to face denial in the end. Regardless of how immaculate the business plan, the market analysis, or the potential to prosper, traditions of banks and other conventional funding sources are steadfast, and hard-nosed in their positions in what they will or will not finance; leaving entrepreneurs to scramble with their ideas and the dilemma of finding money elsewhere.
Against the odds, more and more entrepreneurs are bouncing back and turning to the alternative sources for money. To see their dreams come to life, they are willing to venture into crowdsourcing relationships and agreements. To protect the interest of the fund-seekers and the projects at hand, it is in the entrepreneur's best interest to talk to a lawyer first before engaging in any exchanges of money or agreements. There are many laws and loopholes, specific to money and the exchange of money. Lawyers are able to assist with interpreting the law and its requirements for interests involved in plain English.
According to Kristina Dell, author of article titled "Crowdfunding" posted on the Time website (September 4, 2008), "The term crowdfunding derives from another neologism: crowdsourcing, i.e., outsourcing to the public jobs typically performed by employees."
SellaBand is an example of crowdsourcing online; the company is helping new music artists raise money to finance their music projects. Potential investors connect with the artists through the SellaBank community website to help artists reach their funding goals. According to the "how it works" page on the site, an investor is free to withdraw their money from a project anytime during the fundraising. Once an artist has reached their fundraising goal, investors are no longer free to withdraw the money. Investor benefits range from free music downloads and exclusive CDs, lunches, or even revenue from the profits.
Crystal Watts - Crystal Watts is a Freelance Writer and Leader in Digital Media management across multiple verticles.
