Entrepreneurs now have more options when it comes to funding their startups. Thanks to the JOBS Act, which passed in April 2012, small businesses can seek funding from investors that don't necessarily carry the SEC's stamp of approval (with restrictions).
Practically anyone can be a small business investor today, and it has blown open the door to funding opportunities. And one way startups can quickly raise capital is through crowdfunding.
What is Crowdfunding?
As the term suggests, it's a form of funding your business or project that blends new technology with some surprisingly traditional ways of pooling capital. Instead of relying on bank lending or venture capital, entrepreneurs make an appeal to the Internet at large. In short, crowdsourcing meets capital.
It's similar to group lending where friends, family and entire communities would contribute money, but on the scale of the World Wide Web. Would-be entrepreneurs sign up for project pages, set funding goals, establish rewards and promote them online and over social media to find investors.
Typically, startups use crowdfunding sites to help get a new product or service off the ground. But a word of warning, there's always the risk that your idea won't get funded. For every blockbuster funding success like the OUYA Android-based gaming console, there are dozens if not hundreds of unfulfilled goals.
But if you have an innovative idea, a killer business plan, social media smarts and you offer compelling incentives to potential funders, then crowdfunding could fast-track your entrepreneurial ambitions.
5 Crowdfunding Sites to Get You Started
Although it bills itself as a "funding platform for creative projects," some startups that hoped to launch new products -- like the aforementioned OUYA -- have found success on Kickstarter. While most any product with a dash of creativity has a chance on Kickstarter, apps, gadgets and new twists on old tech, seem to get the most traction.
Another big crowdfunding site, Indiegogo thrives on creativity and imagination -- like many startups, in fact. Whereas techies love Kickstarter, Indiegogo seems to attract the socially conscious set. That means that your idea or product could compete for dollars against campaigns like the "bus monitor," whose ordeal and subsequent outpouring of support eclipsed all other projects and gained mainstream media attention this past summer.
Now it's time to really get down to business.
Crowdfunder is specifically geared toward startups and small businesses. The company sells "equity, debt, and revenue-based securities to investors online," meaning that only entrepreneurs with solid business plans need apply. A team reviews pitches before they're posted online, keeping the quality of funding opportunities relatively high.
Like crowdfunder, WeFunder is specifically tailored for startups. To date, more than 7,000 funders have poured more than $19 million into startups. Currently in beta, the site takes a very by-the-book approach to investing in small businesses -- and it's a great thing. Just take a glance at this informative blog post on the legalities of startups and crowdfunding. Not only did WeFunder do its homework, it's helping small businesses navigate some tricky regulatory waters.
If you're an inventor, there's a crowdfunding site just for you. Quirky stands out as a products-only community. In addition to its product-development focus, Quirky has another thing going for it: retail partners. Good, marketable products have a shot at the shelves of Bed Bath & Beyond, Amazon.com, Target, Ace Hardware, ThinkGeek and many others.
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