Crowd Funding

I would now bet that crowdfunded investing will become legal here in some form, hopefully fairly soon — and that when it does, we’ll see a surge of grassroots entrepreneurship, innovation, local investing, and economic vitality.

The question is can scientists use crowdfunding to fund their research? Based on RocketHub’s success, it appears the answer is a resounding yes. The service is banking that science and education can do better asking an interested public to join with them in funding unique and worthy projects. Plus, the crowdfunding wave is nudging scientists to do what many artists and business owners have to do – engage directly with the public, with fans, with customers. The feedback mechanism also offers a benefit to the scientist that could help refine a project focus based on crowd support and ideas. The current rate of funding for science proposals in the U.S. is ~20%. Crowdfunding will likely increase that success rate.

Enter Unbound, a British effort to “crowd-fund” books. Visitors to its website can pledge money for a book that is only part-written. If enough money is raised, the author can afford to finish it—and the pledgers will get a copy.

The site is like a curated slush pile. It features pitches and excerpts from a handful of established writers, such as Jonathan Meades and Amy Jenkins. Visitors can stump up £10 ($16) for an e-book and a nod in the afterword, or up to £250 for such treats as lunch with the author.

Authors see a new way to nurture fans and make money, even as publishing budgets dwindle. (Unbound’s profits are split 50-50.) Readers apparently enjoy feeling like part of the creative process.

Crowdfunding is a natural fit for an independent game developer who needs to connect with an audience and secure funding at the same time; rather than having to "prove" your game to a publisher, you're "proving" it directly to your customers, and you don't have to go out on a limb funding it yourself with no idea of whether or not you'll sell enough copies to recoup your investment.

Crowdsourcing has moved to the money arena, tapping the power of larger audiences to provide funding options for startups and established businesses. A host of websites dedicated to crowdfunding are popping up, matching small businesses, soloists and artists with people willing to invest in projects they find worthy of support.

1.  More than 50% of companies funded by angel investors fail, with most returning nothing to investors.  And, less that 10% of these angel-funded companies are home runs, providing exciting returns on investment to angels.  These home runs often take a decade or more to mature to the point that investors can exit.  Since investing in startup companies is very risky, the only winning investor strategy is to pick well and invest in many companies.

downsides to crowd funding.

Crowd investors will not be in a position to demand board representation on new companies and will likely suffer from lack of feedback from funded companies.

crowdfunding is different to many funding models in that it is based on the widest possible participation and tapping into “The Long Tail.” To do this, it has to reduce the barriers to participation, so it must reduce the friction and cost in the process and leverage the power of the networked engaged world where individuals are less constrained and able to re-imagine themselves into new roles, in this case as investors.

e arguments for the regulation are primarily founded in the notion of risk mitigation and fraud prevention.

So, the real innovation in crowdfunding beyond tapping into your tribe or casting the net a bit wider comes with the advent of turnkey platforms that open the field up to much wider groups of investors beyond the “certified high net worth” individuals- in other words, you and me.

What makes Kiva “social” are some of the typical features you would have in a social network, like pictures, profile, updates; but more than that, it’s that sense of personalisation that originates from knowing what you’re doing with the money you’re giving.

One of the first peer-to-peer lending site to launch was Zopa, a London-based company providing an online money exchange service. Zopa operates within the UK, Italy and a service is being developed for Japan.

 In 2006, Prosper was launched in the US, following the same model.  In 2007, LendingClub launched the second peer-to-peer lending site

The bill provides a crowd funding exemption from Securities and Exchange Commission registration of securities offerings, with certain limitations: A $10,000 limit per investor (or 10 percent of annual income, whichever is less). A cap on the amount a company can raise of $1 million per offering (and up to $2 million if audited financial statements are provided). No limit on the number of accredited or unaccredited investors.

newer (and crowd-based) tools to monitor online reputations are emerging. Either way, the potential to unleash untold numbers of new ventures is certainly exciting for would-be entrepreneurs.

Despite travails, van Houtryve sees a lot of promise. “It’s an intuitive model,” he says. “Backers have started to pose relevant questions. As my project proposal has made its way through social networks and attracted support from strangers, I’ve made some really fruitful new connections. In addition to generous funding contributions, several individuals have stepped forward with key contacts and very precise and helpful advice. I have already managed to make stronger photos due to their input. This is a pleasant shift over the lone-wolf existence.” The attraction of an initiatives such as Emphas.is are their transparency.

Seeded by the Grameen Bank, industry trailblazers like Kiva and Prosper applied the concept of microlending to the Internet, spawning people-to-people lending. The newest breed of microfinance — crowdfunding — is fast growing in popularity.

The hope is that crowd funding will give kitchen-table investors the ability to buy in to a much broader range of opportunities, and will give start-ups access to a whole new pool of capital—the money sitting in every American’s checking or savings account. Advertisement placeAd2(commercialNode, 'midarticleflex',false,'') One site that is experimenting with something like this is SlowMoney, profiled by journalist Amy Cortese in her 2010 book Locavesting. SlowMoney facilitates investment clubs that evaluate proposals from farmers and other purveyors of local agricultural goods

It gives a massive pool of investors—basically everyone—access to a wide range of companies. And it gives that wide range of companies access to a massive pool of investors.

A majority of our contributions came from people we know. Our enthusiastic team of Tweeters, Facebookers, and staff who supported the campaign and alerted their friends and followers brought us a strong a first-tier network of funders.

The IndieGoGo staff selects campaigns they believe exhibit a high “GoFactor” to highlight on the first page of results

There are loads of articles on the web with ideas for perks from successful campaigns, but keep in mind that those benefits should be thoughtfully tied to your core project.

Scientists have joined the ranks of those asking the public to help fund their work. Their research projects hide among the art, video and book proposals on large crowd funding sites like Kickstarter, RocketHub and IndieGoGo. You can find a neat project here, but choose carefully: not every science project here is run by scientists, nor has it been reviewed by scientific experts.

Projects on these sites are looking for an injection of cash to continue a specific project. But other scientists have turned to the crowd for help with long-term costs: salaries.

Startups don't just need money -- they need expertise. In the current scheme of things, investors often provide that expertise. They became wealthy because they know something about how to run a successful business.

But in a crowdsourced model, no one investor has substantial money in the venture. So there's no one who could insist on a board seat as part of their deal, or otherwise make an entrepreneur take their ideas seriously for how to grow the business. That makes the startup a riskier venture, both for the investors and the entrepreneur.

ON NOVEMBER 3rd, surprisingly, a bill was passed by the House of Representatives with strong bipartisan support. The Entrepreneur Access to Capital Act aims to make it easier for small businesses to raise money through “crowdfunding”. For the first time ordinary investors would be allowed to put up to $10,000 in small businesses that are not registered with the Securities and Exchange Commission, enabling Joe Schmo to win big if the company becomes the next Google.

Start-ups are especially needy now, since many banks are loth to lend even to well-established companies.

Jack Herstein, president of the North American Securities Administrators Association, says the only jobs created will be “more jobs for securities investigators”. The current bill does not require start-ups to give detailed information about their business plan, and since stakes in businesses are illiquid, investors will not be able easily to get their cash back.

Though the initiative went smoothly, the entrepreneurs don't plan to participate in crowdfunding again—at least not anytime soon—because they say it would send the wrong message to their supporters. "If we asked for more money, that would be far-fetched," says Mr. Gaffney. "We don't think people would donate twice." In addition to being able to raise money via crowdfunding only so many times, entrepreneurs say another caveat is that some people find the tactic offensive. Others say would-be contributors aren't always comfortable sending money through crowdfunding services.

To catch the eye of potential funders, you’re going to need to stand out, engage your community and close the sale.

Are you a creative? Be sure to check out Kickstarter or IndieGoGo.Looking to start more of a traditional, albeit entrepreneurial, business? Head over to ProFounder.Does your idea have a social bent? You might do well at Buzzbnk or 33needs.Non-profits can fundraise at sites like CauseVox or FirstGiving.

Many of the successful projects on crowdfunding sites target a specific, narrow audience.

collaborative thinking can provide solutions faster

by involving people in the early stages, they will feel more connected to the project

1. Crowdrise

Plus, if Launcht had been legal and available in 2007, it would have allowed us to take smaller amounts from a larger group of investors. This would have reduced the pressure on us to produce big returns for each investor, because each investor would have had less at risk. It also would have given us access to more people who would have been vested in our success, which would have produced more leads and opened more doors.

Plus, if Launcht had been legal and available in 2007, it would have allowed us to take smaller amounts from a larger group of investors. This would have reduced the pressure on us to produce big returns for each investor, because each investor would have had less at risk. It also would have given us access to more people who would have been vested in our success, which would have produced more leads and opened more doors.