Ten Questions to Kickstart Your Business Idea

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In an age when banks are far more cautious about where they invest, how do you fund that world-beating project? Crowdfunding might be the answer. The Best You finds out about this innovative way of raising cash – and what it can do for you.

Crowdfunding – what is it?

Crowdfunding is a way for projects that need funding but don’t meet conventional business criteria to get started. It might be that the project is an arts project, that it is an independent business project without conventional backing. It could even be a more distantly-related request for funding that only helps the project indirectly.

How did I start?
An early instance of crowdfunding happened way back in 1997, when UK rock group Marillion asked their fans to help fund a US tour. The fan base got together and raised the £60,000 needed – and Marillion have used this method of funding tours ever since.

How does it work, nowadays?
Nowadays there are numerous websites acting as crowdfunding portals. Probably the most famous of these is Kickstarter.com. Each website does things slightly differently, but the essential format is the same: a creative individual, group or business with a project to fund pitches their idea on the website.This can be done with the written word, but also often involves a multimedia presentation.
People seeking funding set out exactly how much they need and set a financial target and a timescale within which to reach it.

What’s in it for the investor?

Many of the arts-based crowdfunding sites offer a piece of art in return for crowdfunding, a ticket to a show or a certificate, advertising – it could be anything. For many investors in the arts field, the satisfaction of knowing they got an arts project off the ground is enough.
However, part of that presentation includes outlining what the investor will get back from it should the desired funding come through. This can be anything, and can often be staged depending on the level of investment.
For example, one cake making company seeking investment offered three different levels of repayment for the project – including free cakes delivered to you and a friend, and membership of their cakes club. Another offered advertising in a book they were writing. A
third offered a large discount on the product they were designing, once it came to production.

What if the target funding isn’t reached in time?

Many crowdfunding websites run an escrow system, meaning the money is only released to the project provided the criteria for investment are met. If not the money is returned to the investors. If you are considering investing it’s worth checking this. Other crowdfunding sites simply forward the money straight to the project.

People seeking funding set out exactly how much they need and set a financial target and a timescale within which to reach it.

Is it legal?
There have been problems with crowdfunding in the US, due to the restrictions placed on individual investors by the law. If direct profit is being offered to investors as a return, then this may fall foul of securities regulation. However, the law has recently been changed in the US to enable crowdfunding more easily.

What notable projects have come from crowdfunding?
The news is currently filled with crowdfunding success projects. From the initial arts projects that started the ball rolling, the phenomenon has expanded to all sectors. Here is a random pick of some of the more noteworthy projects:
• Elite: Dangerous, a video game requiring development funding raised US $1.25 million in 2 months.
• Pebble Smartwatch raised US $10.25 million to get their e-paper watch into production. The first $100,000 was raised in 2 hours.
• One website is raising money to save an artist’s eyesight.
• One writer funded his walking tour of Europe, including receiving pledges of places to stay from funders on a crowdfunding site.
With Kickstarter.com alone raising
$319 million in 2012, it’s never been a
more interesting time to raise money. Crowdfunding is a genuine option to raise money for that project you are seeking to further, and for investors represents a great opportunity to meet creative and innovative people and get in at the ground floor.

Crowdfunding websites:
www.artistshare.com www.campfirenow.com www.fundageek.com www.indiegogo.com www.kickstarter.com www.sponsume.com www.banktothefuture.com

DID YOU KNOW?
Jeff Howe first coined the term crowdsourcing
in a blog post accompanying his June 2006 Wire magazine article.

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