Crowdfunding for Startups Sees Explosive Growth
New startups have always struggled to secure financing, but the mounting number of Kickstarter successes are showing the business world that raising funds with small donations from a large number of people is surprisingly effective. Business News Daily1 reports that more small businesses and startups are turning to crowd source funding. In fact, a number of trends are causing this type of fund raising to experience explosive growth.
Major Crowdfunding Trends
A few years ago, crowdfunding for business ventures was fresh and new. It was rare for startups and small businesses to turn to inspiring a large number of people to invest in their vision. Common borrowing methods consisted of bank loans and venture capital. In today’s business world, it’s become just as common to announce a crowdfunding campaign. It may have even exceeded traditional borrowing methods. Forbes2 is predicting that during 2016, crowdfunding is likely to surpass venture capital in terms of funding.
WePay provides payment services for crowdfunding, small business and marketplace platforms. The company’s CEO and cofounder, Bill Clerico, said, “Many major news organizations are now highlighting noteworthy campaigns.” He also said, “That’s not just good for the campaigns, but it also normalizes the behavior and leads to more people giving to crowdfunding campaigns.”
Trends show that nonprofit organizations especially benefit from crowdfunding. Anisa Mirza, the CEO and cofounder of Giveffect, said, “Charities are seeing a twofold benefit from crowdfunding.” For charities, crowdfunding has become an effective way to seek and manage donations compared to past techniques. Also, the added social and viral possibilities of these campaigns frequently give smaller charities a cost-free way to bring attention to their cause.
When it comes to crowdfunding, industry experts predict growth. A few years ago, Congress passed the Jumpstart Our Business Startups, or JOBS, Act. The government body passed the bill to bring attention to equity crowdfunding. After a three-year delay, the bill’s final provisions went through in 2015 making it possible for small businesses across the country to raise money through crowdfunding.
The CEO of CrowdsUnite, which is a site that reviews crowdfunding campaigns, confirmed that the legislation will let more private startups gain access to investment funds. He pointed out that in small communities, local restaurants along with mom-and-pop stores may find it easier to stay in business due to funding received by customers who want these establishments to remain open in their towns.
Types of Crowdfunding
Inc.3 reports that there are two main crowdfunding options. The first one is receiving rewards. This is the traditional type, and when it is used, investors receive some kind of compensation for investing funds into a venture. For instance, someone who invented a new type of shoe may send their investors a pair to thank them. Those who donate money in this situation don’t become official investors in the business, so if the company turns into a major success, then they won’t see the compensation that they would if they had invested traditionally. People sometimes choose not to invest because of the setup, but this version of crowdfunding works since people aren’t giving a big amount.
Equity crowdfunding is the second type, and this is the newer option that became available with the JOBS Act. Through equity crowdfunding, companies can collect as much as $1 million each year over the Internet. This kind of crowdfunding lets contributors become company shareholders, so it walks the line between traditional investing and the receiving rewards kind. Companies that are interested in equity crowdfunding must be incorporated. Keep in mind that S corporations can only have 100 shareholders while C corporations do not have this limitation.
A Statistical Glimpse
According to statistics, in the United States, there are more than 190 crowdfunding platforms. Around the world, the percentage growth of crowdfunding platforms has increased by 60 percent while the total volume of crowdfunding throughout the world comes to $2,806 million. The most active categories are social causes, and these account for 30 percent of all crowdsource-funding campaigns. Kickstarter is the most popular launching platform with more than 290,000 projects initiated through the organization. However, the Crowdcube website is another popular source as the organization saw more than 130,000 projects launched through it.
Advanced Technologies Bring Growth Opportunities
With the world embracing crowdfunding, individuals and organizations have more ways to obtain financial resources. This form of investing offers benefits for those interested in aiding new business ventures as well as for those who need financial help to get started. To read more articles about the growing presence of equity crowdsource funding, visit the PersonalMoneyStore.com.