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What Is Crowd Funding?

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Published August 26th 2012
Back a creative entrepreneur - for as little as $1
Kickstarter Screenshot
A screenshot section taken from popular crowd funding website Kickstarter. Source

With a head full of brains and their shoes full of feet, all an entrepreneur needs these days is a hefty bank account or the goodwill of strangers.

Crowd funding, also known as crowd financing, uses the 'many hands make light work' principle to give start-up projects and emerging companies the financial backing they need. Through websites such as Kickstarter, Pozible and RocketHub anyone can post a description of their intended project and name a goal amount of cash they require. Individuals then 'pledge' as little as one dollar to the project and if the goal amount is met, the pledged funding is released and the project is underway. If the goal is not met, prospective backers keep their money. Often in return for a pledge a graduating series of 'rewards' are offered - generally items or keepsakes associated with the project - to the backer in return for their support.

It seems that having an array of people reading over prospective projects does more than just generate publicity it can help weed out fraud. A blog called Tech Dirt cites the example of a false listing for a video game, which raised about $5,000 before the online community put a few things together and realised that the fraudsters had copied images and content from around the internet to create a fake listing.

Currently, crowd funding is completely legal, although there are some policy changes stirring in the U.S. In an article for The Sydney Morning Herald, Business Reporter Ben Butler (try saying that five times, fast) examines the potential liability of crowd-funding your project; if the reward offerings are high enough, the effort may constitute a managed investment scheme, of which operators are heavily regulated. Obviously this is problematic because any effort to diminish offered rewards will have flow-on effects in a project's ability to raise funds placing them firmly back in square one of their venture.

Crowd funding also works on a philanthropic basis to support international aid through donations and also microfinancing the process of lending a small amount of money to entrepreneurs, farmers and small business owners in developing countries, in order to empower citizens to build sustainable income through grassroots projects.

More information on crowd funding can be found in The Crowdfunding Bible
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Why? Entrepreneur success, one dollar at a time
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Your Comment
Great article Emily!
I hadn't hear of crowd funding before and you filled a gap well,
And the story was told in a way that made it easy and entertaining to read.
by Dave Walsh (score: 4|11309) 3599 days ago
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