CrowdFunding – All about it!

A new chapter has begun with the funding and raising up of startups. The much anticipated JOBS (Jumpstart Our Business Startups) Act was signed by US President, Barack Obama. The new bill gives life to startups to raise money from multiple investors.

This concept is being called — CrowdFunding.

While CrowdFunding allows taking help from many lending hands, it also increases the risk of managing these many hands. One of the biggest challenges handled by corporate CEOs is managing the interests of major investors. It also poses many questions regarding the source of funding, managing the overall enterprise virtually, etc.

CrowdFunding

Why is CrowdFunding Required?

  • CrowdFunding demands the cooperation and trust among the people who network together to pool financial and non-financial resources to propel startup companies and poorly funded organizations.
  • CrowdFunding can be explored for a variety of reasons including funding a startup company, new software development venture, to support fans, to extend hands for relief operations, etc.
  • CrowdFunding was and is successful in extending charity for the cause of the poor and helpless destitute.
  • In the recent past it is more applied in business terms to get the power to start and promote a business.

What would CrowdFunding Do?

No doubt that the new bill will revolutionize the way startup companies will sprout and evolve in the coming days. It will be a new ball game to be played by investors as well as Securities and Exchange Commission (SEC). As a matter of fact, now, anyone can invest in a business venture. However, as per SEC guidelines, an investor has to quality the terms spelled for ‘accredited investor’. The JOBS Act changes how the legal systems work with respect to settlement of issues related to fund-raising and how a public company reports to the concerned statutory institute.

How Startups Can Benefit from CrowdFunding?

The initiation of the JOBS Act is appreciated to trigger new startup business. It is easy to pool resources. However, startups should ensure that this channel of investment should not be misused by investors to convert black money into white money. For this, it is required to establish the proof for the source of income. It is important to maintain the relationship with investors. The companies utilizing CrowdFunding should also establish what kind of privileges they can extend to investors. The privileges extended to investors should not be detrimental to the very growth or the culture of the company. Businesses should maintain the highest levels of transparency with relation to the investments made by investors. There should not be any ambiguity in the expectations set before the investors. Businesses should also be able to get the confidence from investors that the money invested by them will be utilized properly and should be able to perceive the growth on their investments.

The Future of CrowdFunding

CrowdFunding will be a big boost for businesses as it is getting difficult to acquire credit from banks and traditional lending agencies. It is a great opportunity to source funding from small investors. As the businesses hunt for financial and other resources, the business gets ample publicity. This gives an opportunity for investors to invest in companies that are working for the products and services that they like. This loyalty factor will make them stick to the business and will help them grow with the business.

On a concluding note, there are mixed reactions from legal and financial experts about the implications of CrowdFunding. From an optimist’s point of view, CrowdFunding will definitely make a world of good for startups!

(Image Courtesy: kirktaylor.com)