Raising Capital online

Raising capital online

If you want to start up a business, there are several ways to get the start capital. This report deals with crowdfunding. More and more projects raise money through crowdfunding, which is booming at the moment. There are several websites where anyone with an idea can ask the crowd for small sums of money that, added up, can bring it to fruition.

Reports show, that the worldwide raised money increased from $530m in 2009 to $1.5 billion in 2011 to $2.8 billion this year. From the 450 crowdfunding platforms the two largest are 'Kickstarter' and 'Indiegogo'.

At the moment, creative arts benefit the most of crowdfunding. But with America's recent Jumpstart Our Business Start-ups (JOBS) Act crowdfunding should change the custom ways of financing businesses. It is predicted that small businesses will raise their capital through crowdfunding when it is properly done.

For a long time it was said that crowdfunding was a short lived fad but this point of view is antiquated. Until now people use to invest in products because they care for the person or company, they want the product or they are a part of the community. A new motive that goes along with crowdfunding is profit. But getting money from strangers is not that easy. Investors must trust you and it is proved that projects that are able to raise 20-40% of their target amount from online 'family and friends' are more confidential and so it is more likely that strangers open their wallet for them. There are also positive perks like being mentioned in a film's credits or getting gifts which are in absence of profit.

Crowdfunding is also well suited to test consumer demand and for the co-creating of products. Google and GM are using crowdfunding for this purpose. Especially for big companies gaining information about customers and good PR are more important than raising money. For small companies money matters most. They won't get amounts of $50.000-100.000 from any bank and therefore 'CircleUp' was founded. This is a new firm that raises equitiy for small businesses form a restricted crowd of sophisticated accredited investors to help firms with revenues of under $10m.

What if anyone could invest his/her money in firms? Regulators are worried that people might get cheated. The Securities and Exchange Commission (SEC) wants to introduce rules to implement the JOBS Act.

To sum up, crowdfunding is an innovative way of raising capital especially for start ups. Fears of fraud may be overdone because crowds are harder to cheat than individuals. It is to hope, that the SEC's restrictions are not too strict that the whole idea dies before it can be developed.