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Crowd funding revised

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A New Way To Raise Money

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Crowd funding revised

  1. 1. 1 Crowdfunding New way to fund your ideas In our materialisticworld,havingadreamto start a businessof ourownis quite expensive. A person needsgreatdeal of moneytotake off.If youhave aperfectideafora business,butlackcapital tomake it come to life,thencrowdfundingcouldbe justwhatyouneed. Itis anotherboomingindustrywhich facilitates fundstootherprojectsorventures tostartoff. What is Crowdfunding? Crowdfunding isa way of raising finance fora projector ventureby asking a large numberof people each fora small amountof money. Itisa collective effortbypeoplewhonetworkandpool theirmoney together,usuallyviathe Internet,inordertoinvestinandsupporteffortsinitiatedbyotherpeople or organizations. Crowdfundingisa place where everyone can come togethertofunda creator’s dreamproject. It switchesthe ideaof askingafewpeople forlarge sumof money. Internethasbeingused asaneffective tool overhere to talkto thousandsof potential funders. Itgivesentrepreneuran abilitytoraise money froma collectivegroupof people whoare connectedthroughthe internetandwanttosupportyour project. How it works? The crowdfundingmodel is fueledbythree typesof people:the projectinitiatorwhoproposesthe idea or projectto be funded;individualsorgroupswhosupportthe idea;anda moderatingorganization(the "platform") thatbringsthe partiestogethertolaunchthe idea. Those seekingfundswillsetupa profile of theirprojectona website andthencampaignisrunby the crowdfundingsites.Projectcreatorcan approach colleagues,peers, family,friendsandevenstrangersthroughacampaign.
  2. 2. 2 DifferentTypesof Crowdfunding: 1. Rewards Crowdfunding Rewards-basedcrowdfundingplaysanimportantrole insupportingandfundingideas,creative concepts,andnewerbusinessesorprojects.It’sagreat wayto getan ideaoff the groundandbuilda brand and community. Peopleinvestsimplybecause theybelieve inthe project.Rewardscanbe offered such as acknowledgementsonanalbumcover,ticketstoan event,regularnewsupdates,free giftsand so on.Returnsare consideredintangible. Thisiswhere people canpre-purchase products,buy experiences,orsimplydonate.While thisfundingmayinsome casesgotowardshelpinga business, fundersare not allowedtoinvestandbecome shareholders. FamousrewardbasedCrowdfunding websites are: Kickstarter, IndieGoGo, Rockethub, Peerbacker, appbackr, Invested.in
  3. 3. 3 OculusVR,a virtual realityheadsetmaker,soldtoFacebook in2014 for$2 Billion.Itusedrewards-based crowd fundingtopre-sale itsvirtual realityproduct. Before FacebookpaidtobuyOculus VR,9,500 people donated viaKickstartertogetOculus off the ground.Those earlydonorsgotthank-younotes, T- shirtsor prototype headsets.DonationsthroughKickstarterare justforrewardpurpose not investments. Types ofStrategy for Crowdfunding: Rewards-basedcrowdfundingcampaignsare commonlyofferedinone of twomodels.  KIA(Keepitall) Here the entrepreneurial firmsetsafundraisinggoal andkeepsthe entire amountraisedregardlessof whetherornot theymeettheirgoal.Here there isa riskto the crowd thatan underfundedprojectgoes ahead. Small scalable projectsare more likelytobe fundedthroughthe KIA scheme.  AON(All orNothing) The entrepreneurial firmsetsafundraisinggoal andkeepsnothingunlessthe goal isachieved.Potential investorsinclinedtowardsAON,assubstandardproductare not releasedif the fundinggoal isnot achieved. ItalsoProvide detailinformationaboutthe campaign. Large non-scalable projectsare more likelytobe fundedthroughthe AON scheme. 2. Equity Crowdfunding People investinanopportunityinexchange forequity.Moneyisexchangedfor shares,orfora small stake inthe business,projectorventure. Equity crowdfundingallowspeople tobecome shareholdersin a company.Equitycrowdfunding becamelegal whenPresidentObamasignedthe JOBSActonApril 5, 2012. It hasopenedupthe opportunityforentrepreneurstopubliclyadvertise forinvestment,andfor accreditedinvestorstoinvestonlineviaequitycrowdfunding. FamousEquity basedCrowdfunding websites are: Bitvore isa cloudcorporate database.Theyprovided ananswertothe bigdata dilemmafacedby businesses.Thisinnovative project launchedanequitycrowdfundingcampaignon Fundable.They closeda $4,500,000 roundto furtherdeveloptheirproduct. 3. Debt Crowdfunding In debtCrowdfunding,investorsreceivetheirmoneybackwithinterest.Alsocalled peer-to-peer(p2p) lending,itallowsforthe lendingof moneywhilebypassingtraditional banks.Returnsare financial,but investorsalsohave the benefitof havingcontributedtothe successof an ideatheybelieve in.Inthe Fundable,Crowdfunder, Micro Ventures, Angel List, Circle up, Grow Venture Community
  4. 4. 4 case of microfinance,whereverysmall sumsof moneyare leant tothe verypoor,mostoftenin developingcountries,nointerestispaidonthe loanand the lenderisrewardedbydoingsocial good. These Platformsgainedpopularity,asbanksincreasedinterestratesorreducedtheirlevel of lending activity. FamousDebtbasedCrowdfunding websites are: 4. Charity Crowdfunding Charitycrowdfundingisthe collectiveeffortof individualstohelpcharitable causes. Here donors have a social motivationforputtingtheirmoneyinandexpectnothingback,exceptperhapstofeel goodabout helpingthe cause. FamousCharity basedCrowdfunding websites are: These crowdfundingwebsite are spreadacrossdifferentgenre too.There are some crowdfunding websiteswhichare speciallymeantforspecificgenre of businesslikeSellabandandPledgeMusicfor Music, AppbackrforApps etc. Kickstarterand Indiegogo.comare well-knownwebsitesforcrowdfundingacrossthe world. Kickstarter isbasedon AON strategyof rewardfundingwhile IndiegogoisbasedonKIA strategy. FamousProjectsby Kickstarter: Kickstartercharges5% fee foreverysuccessful project.AsAmazonPaymentisusedtoreceive the fund,Amazonwill applycreditcardprocessingfees,whichare 3-5% of the raisedprojectfund.  A dock made for the iPhone designedbyCaseyHopkinsbecamethe firstKickstarterprojectto breaka milliondollarspledged.A few hourslater,aprojectby computer game developersDouble Fine Productionstofund a newadventure game reachedthe same figure and finishedwithover$3 millionpledged.Thiswasalsothe firsttime Kickstarterraisedover a milliondollarsinpledgesinasingle day.OnAugust30, 2014, the "CoolestCooler",an icebox createdby RyanGrepper,became the mostfundedKickstarterprojectinhistory,with US$13.28 millioninfunding –breakingthe recordpreviouslyheldbythe Pebble smartwatchproject. Lending Club, Prosper, SoMolend, Endurance Leading Network GoFundMe, Razoo, Crowdrise
  5. 5. 5 FamousProjectsbyIndiegogo: Indiegogowillget4%fromeveryraisedfund,and3% will be chargedforcreditcard processing,plus $25 wire fee fornon-U.S.campaigns.If aperson appliedforaFlexible Fundingplananda campaign failedtoreachthe goal,Indiegogowill charge 9% of the fund,but creatorscan take the remaining fundsaway.  The Canary Smart Home securitysystemfoundcrowdfundingsuccessonthe IndieGoGo platforminsummerof 2013. Over$1.9 millionwasraisedin34 daysfor the device,which containsan HD videocameraand multiple sensorsthattrack everythingfrommotionto temperature andairquality.  Let'sBuild a Tesla Museumcampaignto buyback NikolaTesla’s(greatestGreekengineerand inventor) oldlaboratory,raised$1.3 millionfrom33,253 funders. Theirgoal was$850,000. Ref:
  6. 6. 6 http://www.nytimes.com/2014/03/30/opinion/sunday/how-to-harm-investors.html http://www.maximumpc.com/three_kickstarter_alternatives_2014?page=0,2 http://www.ukcfa.org.uk/what-is-crowdfunding http://www.hongkiat.com/blog/crowdfunding-sites/ http://www.shopify.com/blog/8071463-the-top-5-crowdfunding-sites-for-your-next-big-idea http://didattica.unibocconi.it/mypage/upload/49036_20110414_125339_JOSM_CROWD_FINAL.PDF http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2447567 http://www.forbes.com/sites/chancebarnett/2014/05/01/2-billion-facebook-acquisition-raises- question-is-equity-crowdfunding-better/ http://www.forbes.com/sites/chancebarnett/2014/08/29/crowdfunding-sites-in-2014/ http://www.forbes.com/sites/wilschroter/2014/04/16/top-10-business-crowdfunding-campaigns-of-all- time/

A New Way To Raise Money

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