When a person is looking to start a business, they often need a significant amount of startup capital in order to make sure the business has what it needs to get off the ground. While many people take the traditional route of applying for a loan at the bank, a new method is gaining popularity. Crowdfunding is the process of collecting a small amount of money from a large group of people. It takes more time to collect the funds needed, but every investor has a very small portion of the risk. For anyone looking to get started in a business, this may seem like a great way to raise the capital needed in order to get going. But just how risky is crowdfunding?
The concept of crowdfunding has been around for quite some time. In fact, it is the whole premise that many charities work off of. They solicit small donations from a large number of people in the hopes that their overall budget needs might be met. With the internet making it easier to connect, many organizations are leaning toward crowdfunding even more. The process remained in relative obscurity, with many of those utilizing this method being struggling artists who needed a boost until their “hit it big.” That is until Kickstarter entered the scene. They were not the first website to host crowdfunding operations, but they have grown rapidly to become one of the biggest, if not the biggest.
Kickstarter launched in the spring of 2009. They have had to make certain guidelines so that not just anyone can come in and use their service. The company decided to make projects their goal, everything on the site must be working toward a goal such as an art project, film project, or something else attainable (this means no business startups or charities). Since their launch over 3 million people have pledged over $5 million towards these projects.
In just a few short years this site has seen explosive growth. But why would people choose to use crowdfunding rather than get a loan? For many people it is one of the only options they have available. Since the great recession banks have been tightening their belts. Those who need larger loans that have little to no credit will find it tough to get started in their dream job.
One of the biggest benefits of crowdfunding is that the funding can be a loan or a gift. That means for those trying to raise money they can decide if they want to solicit gifts from people, or if they want to promise some sort of return in exchange.
For the entrepreneur that is seeking funding for his or her project, crowdfunding is probably the least risky way to raise capital. Those who are donating to the cause do so without the expectation of getting any of their money back (with the exception of a micro-loan of course). But it is a rather tedious way of going about trying to get funding for your project. For those who are using crowdfunding as a way to build wealth (through the micro-loaning system), they are taking an enormous risk. When half of small businesses do not survive the first five years of business, it is important to know that when contributing through a crowdfunding operation, it is best to think of it as a gift, not a loan. If you have a great idea, and want to pursue crowdfunding even further, check out the top 10 sites that help with that sort of operation.