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Who Needs A Bank When You Can CrowdFund Your Business Idea


by on 05/02/14 at 2:34 pm
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The concept of Crowdfunding is receiving increased popularity of late and is proving to be a practical, viable, DIY option for more and more entrepreneurs.

So… What exactly is crowdfunding? Crowdfunding is the process of gathering small amounts of funds via individuals and is usually accomplished via an online platform. It follows the broader concept of Crowdsourcing which is the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people and especially from the online community rather than from traditional employees or suppliers.Participants in the Crowdfunding process include: The people or organisation that is proposing the project, The Crowd that supports the project or proposal and The Platform that facilitates the process of linking the two.

 

One of the earliest examples of Crowdfunding was undertaken by Joseph Pulitzer in order to raise funds for the pedestal of The Statue of Liberty. The pedestal cost being $250 000 and the amount required being $100 000. Pulitzer issued an advert in his newspaper, The New York World asking for contributions to the project. The campaign brought in a total of $101 091 which covered the shortfall and even had some money left over. This was given to the sculptor as a gift. Not bad considering all of this happened in 1885.

The equivalent of this now would be a campaign hosted on a Crowdfunding platform like Kickstarter or Indiegogo. These platforms have been extremely successful in their campaigns so far with the electronic watch Pebble bringing in a whopping $10.2m. This is especially heartening news considering the increasing number of individuals that find it difficult to access funding through traditional sources like banks or finance houses. This combined with the recently raised interest rates make Crowdfunding a very attractive alternative to traditional financial institutions.

The process of setting up a Crowdfunding project is not as daunting as one may imagine. One simply submits their idea to an online platform like Thundafund and they will contact you with suggestions, tips and any other relevant information that would make your campaign more successful. Crowdfunding shifts the balance of funding power from funding institutions to individuals. The other critical factor is that the success or failure of the campaign is directly proportionate to the amount of impetus that you and your champions inject into it.
Thundafund also puts in place milestones that every project is subjected to. The minimum being Milestone 1. This is the bare minimum amount required and ensures that the campaign keeps the funds that it has raised. Milestones 2 and 3 are the “above and beyond” milestones and can really boost the success of the project. It is aimed at best case scenarios. The platform also features a particularly clever method of maintaining fundraising integrity. The “All-or-Nothing” model ensures that funder’s contributions are returned to them in the event that Milestone 1 is not reached. Everybody gets their money back with no harm done.

Don’t be fooled into thinking that this is just for the techno savvy or for the net elite. Crowdfunding has been successfully utilised by various sectors including; The Arts, Community Awareness programmes and Urban Agriculture projects. The beauty of Crowdfunding lies in its ability to eliminate the ‘red-tape’ and hassle of applying for finances. The crowd has the collective ability to float a project based on their belief in it.

In a world where there is constant pressure on the ‘little guy’ the option of Crowdfunding comes as much needed relief and a realistic alternative to the traditional methods of acquiring finances. The ‘little guy’ now has the opportunity to garner support from believers in the underdog. Crowdfunding will no doubt be used more and more in time and is a brilliant reflection of the democratic process at work within the financial system. Crowdfunding was listed by Entrepreneur Magazine in their December 2013 issue as one of the “The 10 Biggest Opportunities of Next Year,”
2014 is upon us and we have to concur with Entrepreneur Magazine’s prediction regarding Crowdfunding. There is a very clear paradigm shift evident in the method that individuals are choosing to finance their projects.

{Image via Shutterstock]

Ideate is one of South Africa's biggest business blogs, with a team of authors all of whom have had entrepreneurial experience. Ideate is read by entrepreneurs thinking BIG. Follow us on Twitter here. View more articles by Staff Reporter.

Tags: crowdfunding, finance, funding

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