Crowdfunding

Dear M & M:

It seems too good to be true. Is crowdfunding legitimate? What should I be aware of going into it?

–Jim

Dear Jim: 

Crowdfunding is a large number of people (the crowd) raising a large amount of money usually online to fund a project. The project leaders create a small video posting it online through a crowdfunding site asking people to donate money to help fund the idea or project.  There are two types of crowd funding campaigns equity based and reward based.

Equity gives up shares or ownership in the company and reward based backers are given rewards or incentives usually using the product they are trying to launch as the reward. Legislation is currently ongoing in regulating rules especially in the equity based crowd funding platforms. Make sure you understand the Security Exchange Commission’s (SEC) rules on crowd funding if you are considering any equity based crowd funding.

As in anything, be cautious before you proceed with anyone in any business venture. Currently there are over 500 sites offering crowd funding with more being added daily.  Some sites it is an all or nothing ask. If you are on one of the all or nothing sites and you do not meet required funding goal in the time allocated the project will not be funded and money is returned to all investors.

It is important to know the rules before you launch any campaign on any crowdfunding site. Understand transaction fees and how much you will be charged. Some sites are available in certain countries and do not accept projects or investors unless it is based in the countries they allow.

Some sites offer counseling services, some are for non-profits and others are based on certain industries or products. According to Chris Roberts, “Funding Goals”, from Roberts Space Industries, Retrieved January 24, 2015, the highest reported funding by a crowd funded project to date is Star Citizen, an online space trading and combat video game being developed by Chris Roberts and Cloud Imperium Games as of 13 May 2015—claimed to have raised over $82,000,000, beating the previous record of $10,266,844 set by Pebble Watch an Apple based smart watch product.

By the end of 2014, crowdfunding is estimated to add at least 270,000 jobs and inject more than $65 billion into the global economy, according to estimates from crowdfunding platform Fundable. Crowdfunding is another one of those big ideas that isn’t going to go away. Do business with a reputable company, understand what you are getting into and get the crowd interested in funding your project to be successful. Google top 10 crowdfunding sites and start investigating.

-M&M

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