Venture Capital Firms

Why Is Crowd Funding A Valuable Source Of Funding For Entrepreneurs

Crowd funding is the newest Web 2.0 method for many businesses to raise start-up capital or individuals seeking to find specific projects such as film making, art exhibits, book production or possibly photographic essays. Sites exist on the Internet such as IndieGoGo, RocketHub and Kickstarter where people can examine and learn about certain projects and then make a “donation.” Although these contributors may not know the entrepreneur involved, the concept, idea, product and/or project can be fully explained.

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Additionally, the use of social media outlets allows for the promotion of these business ideas that create favorable “buzz” around the Internet helping popularize the idea.

Do People Invest In Ideas?

The question is begged if people will invest in an idea alone. People do not usually hand over money for investing in something they have not either fully examined or have had it recommended to them as a worthy investment. Additionally, the entrepreneur usually has to provide credentials indicating they are capable of success. However, what crowd funding does for the business entrepreneur is provide a financing mechanism that takes a great deal of risk out of a personal investment. This is due to the fact crowd funding is aimed at raising a great deal of money through the contribution of a ton of small “donations.” People are less hesitant to risk a $50 investment into an unknown entity than one requiring thousands. The initial contribution is typically accompanied by some type of “gift” for the contribution much like a public television station offers a tote bag for the viewer’s $25 donation. If nothing more materializes from that initial investment, the promotional item received satisfies the investors need for receiving something of value for the investment.

Crowd Funding Can Be Manageable

The power of the Internet allows business entrepreneurs to reach a basically unlimited audience when it comes to crowd funding. The ability to use online payment processors also adds to the management capacity toward attracting literally thousands of contributors. These online payment processors provide readily available accounting documentation that makes the recording of investors easily accomplished. In fact, entrepreneurs offering a downloadable “gift” for a contribution can put the entire process on automatic pilot through use of the Internet where investors simply click a payment button and receive a download link completing the transaction. Unlike traditional uses of crowd funding by charities where scores of volunteers have to man phone lines, stuff envelopes or open them, an Internet site set up for a crowd funding vehicle requires little, if any, human labor to operate. Additionally, using the Internet to market a business concept or product virtually produces an unlimited market to explore fund raising opportunities.

Try Crowd Funding as an Augmented Source

Although it takes a good deal of work to market a crowd funding website, engaging in the necessary online social media activity to make it productive, many entrepreneurs might test the waters using it as an additional funding source for capital raising. Plus, use of crowd funding must take into consideration time. Unlike traditional funding mechanisms where the entire amount of needed capital can be found at one source, crowd funding will take some time to accomplish the same financial goals. A good place to start is to isolate a certain part of your budget that will be capitalized through crowd funding. Perhaps this can be a specific marketing campaign. Create the crowd funding effort centered in this specific channel including all your Internet activity.

Crowd Funding Growing in Popularity

A time will arrive on the not so distant horizon where more traditional business enterprises engage in the not-so traditional method of crowd funding as a primary source for capitalizing, It is definitely in its infancy and like anything new will present a great deal if resistance from acceptability by the business community. However, online entrepreneurs are becoming more increasingly involved in its use since, after all, online commerce is relatively a new concept.

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Ultimately, crowd funding is not dependent upon what any entrepreneur knows. It is dependent upon whom is known. And, when it comes to finding investors through any Internet crowd funding effort, the people you know are the “friends and followers’ of the people you have as your friends and followers through popular social media outlets like Facebook and Twitter.
As the popularity and global acceptance of the Internet grows daily, opportunities also grow for business entrepreneurs to tap into the power an online presence provides reaching a potentially unlimited source of investment.

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