A combination of technology and the Crowdsfund Act (Title III of the 2012 Jobs Act), has made it easier for entrepreneurs to fund their endeavors. Through Crowdfunding, entrepreneurs can reach a large pool of funding candidates. Research shows that the average amount is raised in approximately $20,000.
The contributions are either donation based or equity based. The donation based (Kickstarter model) model is more of a bequest than an investment in that the contributor is not repaid, but may receive a product or service in consideration for their contributions (Kickstarter). These projects are typically artistic or creative in nature.
The equity based model is similar to buying stock or securities (subject to possible state and federal compliance requirements); the business exchanges securities to investors who expect (hope) for a return.
Crowdsourcing provides a completive means of outsourcing various projects, such as website, product, and logo design work. Business owners post their projects online along with what they will pay the winning submission, and participants submit their best proposals with only the winning submission receiving payment. See Crowdspring.com
Stay tuned for the next blog on donation-based platforms….