Crowdfunding as a Source of Capital for Small Businesses and Causes

Crowdfunding is a financing source, typically over the Internet, where many individuals can network and pool their money, usually over the Internet, in support of a cause or individual.

People can contribute typically small amounts of money to support a wide variety of activities including startup company funding and growth, causes, disaster relief, citizen journalism, support of artists by their fans, motion picture promotion, free software development, inventions, scientific research and civic projects.

Crowdfunding can also refer to the funding of a company by selling small amounts of equity to many investors in the United States. Legislation opening the door to such opportunity is pending, that will allow for a wider pool of small investors with fewer restrictions.

Although there were over 450 crowdfunding platforms as of 2012, including industry-specific sites like SellaBand, the most popular are Kickstarter and Indiegogo.

Kickstarter tends to have more restrictions than Indiegogo, requiring a business plan and restricting the release of funds until and unless the stated amount is reached. Indiegogo, with fewer restrictions, will allow the release of funds even if an amount less than the set amount is reached.

The typical amount raised by a successful campaign on these sites is $5,000 to $10,000 although amounts greater than $10,000 to $50,000 can be common, with over a million raised in certain cases. Successful campaigns typically run 30 to 90 days, with outside promotion and viral videos often playing critical roles in their successes.

Several notable business launches attribute their success to fundraising efforts through these sites, including GoldieBlox.

Often, tee-shirts, hats, mugs, bumper stickers and other such products are offered for purchase as the key part of the fundraising effort on these sites.

https://www.kickstarter.com/

http://www.indiegogo.com/

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