Crowdfunding

Definition of Crowdfunding

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives and venture capitalists.

 

Basics of Crowdfunding

In most jurisdictions, restrictions apply to who can fund a new business and how much they are allowed to contribute. Similar to the restrictions on hedge fund investing, these regulations are supposed to protect unsophisticated or non-wealthy investors from putting too much of their savings at risk. Because so many new businesses fail, their investors face a high risk of losing their principal.

 

How Crowdfunding Works

Crowdfunding has created the opportunity for entrepreneurs to raise hundreds of thousands or millions of dollars from anyone with money to invest. Crowdfunding provides a forum to anyone with an idea to pitch it in front of waiting investors.

One of the more amusing projects to receive funding was from an individual who wanted to create a new potato salad recipe. His fundraising goal was $10, but he raised more than $55,000 from 6,911 backers. Investors can select from hundreds of projects and invest as little as $10. Crowdfunding sites generate revenue from a percentage of the funds raised.

 

How Investors Benefit from Crowdfunding

Many crowdfunding projects are rewards-based; investors may get to participate in the launch of a new product or receive a gift for their investment. For instance, the maker of a new soap made out of bacon fat may send a free bar to each of its investors. Video games are a popular crowdfunding investment for gamers, who often receive advance copies of the game as a reward.

Equity-based crowdfunding is growing in popularity because it allows startup companies to raise money without giving up control to venture capital investors. It also offers investors the opportunity to earn an equity position in the venture. In the United States, the Securities and Exchange Commission (SEC) regulates equity-based crowdfunding.

 

Who Are The Crowdfunding Companies?

Like other industry sectors, the field changes from time to time.  Currently (Dec, 2020), some of the noteworthy companies are:

Ideazon at: https://ideazon.com/

Kickstarter at: https://www.kickstarter.com/

Indiegogo at: https://www.indiegogo.com/

 

More traditional funding approaches:

Techstars has Norfolk presence at: https://www.techstars.com/

757Angels is another local resource at https://www.757angelsgroup.com/

However, it’s important to know that there are others, YOU must do your own research, and HRIC does not endorse or recommend one over the other.  We are merely pointing out another avenue to get business funding.  HRIC holds no liability for anything that doesn’t work out to your expectations.

 

How HRIC Can Help You

HRIC has access to resources in our network who may be willing to assist you in preparing your pitch, materials and help you become ready for your crowdfunding approach.

For active members, we will engage and assist your company by promoting your need, and helping you obtain supportive resources.

Note that those supportive resources may charge a fee for their efforts relative to helping you prepare.  Those negotiations and agreements are between you and them and HRIC does not play a role.  HRIC holds no liability for anything that doesn’t work out to your expectations.

 

If interested, in pursuing crowdfunding assistance, start by contacting danbell@hric.email.

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