06 Sep 2012
- Written by Carlee McCullough
(Last week we discussed 'Shark Tank' and the televised opportunity to request funding from shrewd venture capitalists. But there are even more creative ways to raise much needed money.)
Earlier this year, the JOBS (Jumpstart Our Business Startups) Act of 2012 was signed into law to increase the delivery of capital to smaller entities, creating more jobs. It was the fruit of a rare bipartisan effort linking the House, Senate and President Obama.
While most people equate the JOBS Act with encouraging big businesses to hire more people, the truth is that small businesses, startups and entrepreneurs now have even more opportunities to raise much needed capital through a non-traditional means known as Internet crowd funding.
Historically, businesses had serious limitations on how they raised funds. From Securities Exchange Commission registration requirements to compliance with state securities laws (often referred to as Blue Sky Laws), companies were banned from any general solicitations using modern communications. And it no secret that entrepreneurs, startups and small businesses have a difficult time obtaining funds through the traditional avenues of bank financing, venture capitalists and even angel investors.
Internet crowd funding is vehicle for relief. The basic concept is to raise money through an online funding portal via small contributions from a large number of people that wish to support the dreams and efforts of others.
There are two broad categories of crowd funding. In one category, the money is given in return for actual goods or services. Internet sites offer two models – "All or Nothing" and "Keep It All." Under the "All or Nothing" model, an entity seeking funding is given a period of time to collect pledges from contributors. If the entity has not met their fundraising goal at the end of the period, the money is not collected. The "Keep it All" model allows the entity seeking funds to receive all the funds collected minus commission.
The second category of crowd funding more closely resembles the conventional version of venture capitalism, with interest bearing loans or an interest in the equity of the company. Be sure to obtain the rules of engagement on a particular site before proceeding.
Here are three the most popular money for goods or services, crowd-funding sites.
ArtistShare was actually the first of its kind, launching in 2000. ArtistShare created the Internet's first fan-funding platform for artists and actually holds the patent on crowd funding. With a focus on the arts, fans actually pay a fee for the opportunity to share in the creative process with their favorite artists. Fans can receive special limited edition recordings, VIP access to events or recording sessions and even special mention in the finished product.
For years, ArtistShare has been used to fund musicians' projects. The beauty of the site is that artists maintain ownership of their copyrights. This is a "Keep it All" site. Expect to pay approximately five percent in commission and maybe a processing fee.
Launched in 2009, Kickstarter has grown into one of the most referenced of the crowd funding sites. With mentions by the New York Times and Time Magazine, it also one of the most respected. Kickstarter has a focus on creative projects and funds a wide variety of ventures including: indie films, music, comics, literary projects, video games, and food related projects. This is an "All or Nothing" site and has a 5% commission. There is an additional fee of 3-5% to Amazon for collecting fees.
Indiegogo.com has an interest in three areas: creative, cause and entrepreneurial. Creative includes art, comic, dance, design, fashion, film, gaming, music, photography, theatre, transmedia, video/web and literary. Cause includes animals, community, education, environment, health, politics and religion. Entrepreneurial includes food, small business, sports and technology. If your business or concept falls into these areas, this may be the place to start.
A great feature of the site is the option to choose your crowd-funding category. If you want the flexible funding that is the Keep it All version and you meet your goal, then the commission fee is four percent. If you don't meet your goal, then the commission fee is nine percent.
However, if you choose the Fixed Funding version, the money is returned to the contributors, if you don't reach your goal. Also, there is a third party, three percent credit card processing fee.
NEXT WEEK: Join us next week as we continue our focus on crowd funding with a look at the venture capital type of funding sites.