Crowdfunding a Business
In lieu of directly raising capital from a bank, investor, or other private investment source – many entrepreneurs have taken to raising funds for the establishment of a new business through crowdfunding platforms like kick starter and related platforms. One of the nice things about these types of platforms is that they typically do not fall under the guise of raising capital through the sale of securities given that it is a product that is going to be provided in exchange for the needed capital. However, the entrepreneur that is looking to raise capital through these platforms still must conform with all laws relating to acting in good faith and wanting to provide a product to the general public.
On a quick side note, crowd funded projects typically do not require a business plan. However, with the greater competition that is constantly going on among entrepreneurs that are looking to raise capital – some entrepreneurs that raise financing through crowdfunding campaigns have begun to provide a small business plan that showcases what they intend to do with the money so that customers do not feel ripped off if things do not go as planned. However, this business plan can be on the smaller side of things and it can omit certain financial sections given that this is not a document that is going to be specific for capital raising activities with the intent to provide a return on investment for investors.
In the coming years, it is expected that a certain greater degree of regulatory oversight will occur within the crowdfunding market. This is primarily due to the fact that there have been a few instances where unscrupulous individuals have raise capital for specific types of projects without ever providing the product in return. As such, certain individuals have complained about this aspect of the crowdfunding nature of specific projects. In future operations, there may be a substantial verification process that a potential investor needs to go through in order to be able to showcase their product or future service to the general public. However, this is not yet occurred and it will probably be about five years from now for any type of major regulatory oversight occurs for this type of market.
When the key things to remember when raising money through a crowd sourcing platform is that the individuals that are putting up the money are seeking a product or future service in exchange for their current funds rather than a return on investment. As such, and again – this allows entrepreneurs to effectively raise capital for new and innovative products without having to go through the extensive process of registering securities or finding private investors that are able to put up the needed capital for their new invention. At this time, the vast majority of capital that is raised through crowdfunding campaigns is specific for products given at the people who want the services once of intangible and hand. This trend is expected to continue in perpetuity.
In closing, crowdfunding can be a great way to source a significant amount kept capital relatively quickly for a new and innovative product. However, any entrepreneur that is looking for capital raising should be prepared for substantial number of orders and to be able to fulfill these orders relatively quickly.
In the future, we will continue to develop new documentation and articles regarding this type of capital raising as it has become very popular among new entrepreneurs that do not have a direct amount of capital or an established group of individuals will finance their entrepreneurial ventures.