What is crowdfunding?
According to Wikipedia, crowdfunding is defined as:
Crowd funding or crowdfunding (alternately crowd financing, equity crowdfunding, or hyper funding) describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations. Crowd funding occurs for any variety of purposes, from disaster relief to citizen journalism to artists seeking support from fans, to political campaigns, to funding a startup company, movie or small business or creating free software.
Crowdfunding has become the new way to finance projects in the age of social networking. One local media company, A Dog Named Spot, is using the website Kickstarter (www.kickstarter.com) to assist in financing a movie project. It can be used to finance a start-up, raise money for a cross-country cycling trip or sell new music for an aspiring band.
Crowdfunding’s flexible nature speaks to its economic potential and its ability to impact society. As social networking changed how we communicate and share our lives, crowdfunding is changing how we move capital and investing interests.
Why not use traditional banks?
The current financial system (banks) are failing to offer the necessary capital for fast growing projects. We are connecting with people across the country at amazing speeds and ideas are being shared online through social media sites. Partnerships can be formed with people across the globe without ever meeting face to face. Once two or three people brainstorm an idea and decide to pursue it, they will need capital. A traditional bank would have not even begin to review or finance such a project.
As a result, crowdfunding has become the new financiers of our digital age. The skeptics claim this is just a fad and will never become mainstream. However, their cynicism is wasted since the new age of business in the digital age is not about “going mainstream.” In fact, the goal is to stay nimble and agile like the business models that are evolving.
Further demonstrating its validity, the recently signed JOBS Act gave the Security and Exchange Commission 270 days from enactment date (April 5, 2012), to set forth specific rules and method to make sure funding is in place for crowdfunding models.
Until then, there are several companies connecting creators with those willing to invest in their projects, and many of those investors are looking for companies who will only provide a return on investment, but also make a social impact. These investors share a conviction that creative investment can play a crucial role addressing social and environmental challenges.
Check out Kickstarter (www.kickstarter.com) and a new concept for a social impact stock market called ImpactTrader (http://www.impacttrader.com/). There are even new rating services which measure and rate social enterprise performance and legitimacy. One such site is Impact Reporting and Investment Standards (http://iris.thegiin.org/).
Plan on hearing much more about these networks being created over the coming months as new systems are being created to accommodate the rapidly growing, low capital-intensive, organizations.