You have a great business idea planned to the last detail and are ready to go forth. If you’re like most entrepreneurs, your next obstacle will be to find some solid financial backing. Instead of the more traditional methods of loans or investors, modern business owners are taking to the alternative route of crowdfunding.
The basics of crowdfunding could not be simpler. It’s a process where aspiring new business owners raise small amounts of money from a large amount of people, usually via the Internet. Sound easy? Well, to a certain degree, it is. Before you begin your campaign it’s important to understand that there are rules in place that govern, or restrict, investment limits. You can learn more about the legalities of crowdfunding at the 2012 CrowdFund Act.
The basics of the CrowdFund Act, which is a section of the U.S. Jobs Act, state that businesses cannot raise more than $1 million dollars over a 12-month period. It also limits investors to 10 percent of their annual income. These two legal restrictions alone may mean crowdfunding is not for you if you’re a business that requires more than $1 million in startup fees. However, for the smaller, and equally valuable fish in the pond, crowdfunding can prove most invaluable.
It’s been estimated that in 2012 crowdfunding raised more than $2.7 billion worldwide. This year, that number is expected to exceed $5 billion. In this seemingly non-stop recession, many small businesses are struggling more than ever to stay afloat. Crowdfunding has offered countless entrepreneurs an extended chance at success by being able to showcase their products and services to the world over the Internet.
There’s an abundant amount of crowdfunding platforms where entrepreneurs can safely request donations and consumers can safely make their contributions. If you’re interested in participating in crowdfunding as a way to raise some much-needed capital, it’s important to know that while each platform or site offers their own unique spin, the general concept of crowdfunding remains the same.
According to Forbes, between 25 and 40 percent of entrepreneurial projects get their donations from their first, second and third level connections. These first three tiers often include family and friends as well as coworkers, acquaintances or other online connections. Once a business begins to attract donations, it is common for the campaign to begin attracting the attention of other, unrelated consumers who will support the campaigns they believe in.
While the concept of crowdfunding can prove easier or better – say if you do not or can not qualify for a traditional business loan – it does take a lot of effort. There is no magic button to make your campaign go viral and begin reaping in the dough. While such things can happen, most crowdfunding campaigns require the project creator to utilize social media, email contacts and local media outlets. Crowdfunding platforms are not the place to ask for handouts, but instead, are an ideal place to show not just what you do, but why you do it.
About the Author: Stefanie Hartman is an International Speaker, Mentor and Marketing Your Expertise Consultant. She is the founder of the home study program http://www.StopTradingYourTimeForMoneyOnlineProgram.com that teaches people how to discover their expertise and redefine their life & income through specific monetization strategies. She is also the Host of the TV Show “Big Ideas-Bite Sized. There is Power in 15 Mins” For more info visit: http://www.stefaniehartman.com
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