Career Testing
Career Testing
Career Testing
ENTREPRENEURSHIP / MAR. 01, 2014
version 2, draft 2

Crowdfunding 1-0-1: How to Power Your Start-up the Gen-Next Way

Original photo at Flickr (http://flic.kr/p/brd1K2)

Waiting eagerly for the movie adaptation of the popular Veronica Mars TV series? Well, some lucky internet denizens have become a part of the project. Even without a fancy role, they have shaped the movie through generous crowdfunding contributions. With a record 5.7 million dollars raised within a month through a popular crowdfunding platform, the movie has raised the bar for such financially creative collaborations in the future.

So What is Crowdfunding Exactly?

Crowdfunding is one of the most innovative forms of financial access in the entrepreneurial ecosystem. If you have a great start-up idea but fund crunch is the bottleneck, you can always consider asking others to contribute to your project. Crowdfunding is an off-shoot of crowdsourcing – the process of completing set target of work by bringing together contributors rather than through traditional employment. 

Understanding the term crowdfunding can be simplified if you look at it etymologically – crowd or a large number of people come together to raise funds for a certain business or a project that they find interesting. Thanks to rapid strides that internet backed infrastructure has taken and the rise of social media, entrepreneurs planning to raise funds without the hassles of traditional modes of fund-raising, can opt for this new age financing method. Crowdfunding platforms act as a catalyst in this process creating a market place for idea generators & appreciators. All you need to do to get started is to create a few web pages that elucidate your idea. A video of the prototype is an added advantage as it helps in conveying the idea/benefits of the product better.

But Why Should Someone Invest in Your Idea?

The motivation to invest in a project differs from person to person, but the binding factor is whether an idea generates enough interest to attract the crowds. Understanding a contributor’s motivation helps us arrive at the different models of financing which are commonly practiced.

Philanthropy: Donors fund a project without any tangible benefits and all they can derive is an intrinsic and social motivation. This works best for smaller charitable institutions or individuals who raise money for specific causes.

Non-monetary Rewards: The funders get non-monetary benefits such as memorabilia or privileged product usage before its actual public debut etc. These rewards are generally miniscule when compared financially to the contributed amount and even this form of financing is borderline philanthropy. Depending on the contribution, a graduated rewarding system is generally followed. This model has gained immense popularity especially for funding of artistic projects such as movies.

Monetary Rewards: Funders contribute to the project as loan providers. Rather than raising money from one financier, the start-up can get a loan financed by a number of contributors providing part loans. Most of these loans are an investment from the point of view of the contributor and they can earn interest on the contribution amount.

Equity or Profit Sharing: The investor’s motivation lies in getting equity stake in the start-up and may sometimes even extend to profit/revenue sharing. Various regulatory restrictions have limited the growth of this funding structure.

So now that you know funding your start-up is not exactly rocket science and you can always look for help at the most unusual places, why not step up the gas on your entrepreneurial idea?

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