You know some people think that Crowdfunding is really something new. In a lot of ways, it is not. Crowdfunding works a lot like raising money for a non-profit. In a non-profit, donations are given to a cause that someone believes in. They feel that the particular group will spend the money well. About the only difference in Crowdfunding is that normally there is a “perk” involved. I think this is akin to the way that PBS stations raise money when they say that a donation of a specific amount will get you a gift.
The biggest difference with Crowdfunding is that the companies are using specific technology platforms to do this Capital Raise. This gives better visibility than most non-profits get because they are able to use technology to get the message out. One other difference is that generally Crowdfunded projects are funded in a binary way. If they do not get the money requested, then they get nothing. If you donate to a non-profit, then you hand them cash.
Now, the bigger problem is in the details of the spending. I am sure we have all heard of abuses in the non-profit business. You can find examples across the board that the Charity uses very little of its funds to deliver actual services and instead enriches the people that run it. The same is true with Crowdfunding. The most obvious example is Oculus. This was a company that was completely funded through Kickstarter. Then poof, it sold itself to Facebook for about $1B. The original funders got no part of the payout.
So there are challenges with this kind of funding and one of the differences is that you do not need to be an accredited investor to participate. If you remember when I posted about this, it takes a lot of money to invest in startups. These forms of giving are excempt from those rules and thus have a somewhat higher likelihood of problems.
But if you have a project or a company that is as much cause as it is business, then you should consider Crowdfunding.
Have a great day!
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