Crowdfunding and Crowd Financing
This page accompanies the Crowdfunding section of the chapter, Money Makes the World Go Around (Financing Your Business), in the book, Hire Your Job, Fire Yourself. Here on this web page, you’ll find a brief recap of the chapter section, additional information, and some valuable sources.
Did you know that this very book was a result of a successful crowdfunding campaign through KickStarter?
Here is Scott’s quote directly from an Author’s sidebar section of the book: “Because I knew I wanted to include a section on crowdfunding, I thought it would be wise to experience it myself so I can speak authoritatively about it. I had backed a few crowdfunding projects in the past but had never attempted to post a project myself. I decided to make a project for this book to cover the costs of cover design and publication so I could experience it firsthand. It was a lot of very hard work, but it paid off. We used Kickstarter, the biggest crowdfunding site on the planet, and raised $3,737 which exceeded our all-or-nothing goal of $3,500. Before launching the project, I spent a month reading numerous books and articles on the subject, and studying several hundred projects to figure out why they succeeded or failed. I interviewed dozens of highly successful project owners to find out what made the difference. I then wrote some detailed marketing information, created a video, developed some very creative rewards (one of which provided a cool team of secondary editors for this book), and pre-sold over 100 books in the process! It’s an interesting story if you want to read more and learn some valuable information I learned along the way. See the Sources sidebar below for the website link.”
Quick Legal Notice: You are free to use these for your business, but you may NOT sell them, give them away, or use them any purpose other than your own business needs. See the fine print for details.
About the Chapter, Money Makes the World Go Around, Find the Pot of Gold at the End of the Rainbow (Financing Your Business)
The book chapter that points to this web page is possibly one of the most valuable chapters for entrepreneurs desiring to start a new business and for businesses struggling financially.
The book then takes the reader through the process of figuring out how to finance their business, including:
- The important financial equation of business ownership: PROFIT = REVENUE – EXPENSES
- Debt-free financing. This sounds impossible but it can be a reality for most businesses if they understand all the techniques. All too often businesses go for a loan, and don’t even consider a better way. Warren Buffet, a billionaire, is quoted by ABC News as saying, “Don’t go into debt.“
- Figure out what you need for Startup Costs. It sounds like a silly concept but statistics prove that many business owners don’t know how much funding they really need for their business. There is a spreadsheet below.
- Figure out what you have (Your Net Worth). You might have a lot more financial options than you think. There is a spreadsheet below.
- Sources of Startup Funding. This is the meat of the chapter. Eachsectioncontains very valuable ideas and options in these areas:
- Personal Sources of Funding
- Sources of External Loans
- Sources of Investors
- Bootstrapping Techniques. This section is very creative!
- Crowdfunding <<<This is why you’re here, right?
If you found this web page through means other than the book, you should consider obtaining the book. The material found in this chapter alone is a terrific ROI (Return On Investment).
Resources for Crowdfunding and Crowd Financing
Crowdfunding is a process in which businesses or individuals commit money or other resources to fund projects initiated by other people or organizations. This usually involves large numbers of small contributors. The results can be enormous.
Crowdfunding usually takes place through an online portal that handles the legal contracts, pledges and financial transactions involved. These online portals also provide features to promote the project, usually with in-depth descriptions, images, and video. Most also provide social networking and even a reward or incentive system for backers.
Crowdfunding is relatively new and is gaining popularity quickly. Federal and state governments are moving quickly to enable some reasonable structure around crowdfunding possibilities. Because the laws are changing quickly, you will need to read up on recent changes in your state and country.
There are literally dozens of crowdfunding services in existence and the list is growing. There are two main categories that could apply to business ventures and each category has different types of investment models.
The first type of crowdfunding service supports raising money for products, goods, or service ventures. There are three standard models of how funds are handled and some crowdfunding services allow you to select between them:
- All or Nothing. The project owner sets a minimum amount of needed funds to complete the project, and if that amount isn’t pledged by backers, no one has to pay anything and the project owner gets nothing. If at least the minimum amount is pledged, the crowdfunding service will collect the pledges, keep a percentage for providing the service, and pay the project owner.
- Keep Everything. The project owner keeps everything that is pledged, minus a fee kept by the crowdfunding service. If the owner doesn’t raise enough funds to complete the project, it is up to them to find other financial sources to complete it, or refund the contributions.
- Bounty or Kitty. The funds are raised to solve a specific problem and whoever is able to do so, gets to collect the bounty. For example, if someone creates a project to raise money to fix a software bug, others who want the same solution can contribute to the bounty to reward the solution provider who gets approved by the contributors before collecting the bounty.
The two largest crowdfunding sites in this category are Kickstarter and Indiegogo. Kickstarter is an all-or-nothing model and Indiegogo allows the project owner to decide whether the project is all-or-nothing or keep everything.
- Kickstarter officially launched on April 28, 2009 and since that date, well over $1,000,000,000 (yep, that’s one BILLION) has been pledged to Kickstarter projects by around 5.7 million people. Over 17,000 people have backed more than 50 projects.
- Projects that got funded, thanks to Kickstarter, include restaurants, satellites, inventions, books, movies, food trucks, plays, art projects, video games, board games, and the book you are currently reading or listening to!
The second type of crowdfunding supports business ventures. It can be used to raise capital (equity) or to borrow money on specific terms. There are three primary types of business venture crowdfunding services but, in reality, there are numerous others that are tuned to very specific needs or services:
- Equity Funding – Investors receive equity in the company that is raising funds.
- Property Funding – Investors receive some form of interest or ownership of the property from the project owner raising funds.
- Debt Funding – The project owner borrows money and must repay it, usually with interest.
One of the biggest business venture crowdfunding sites in this category is MicroVentures.
The Crowdfunding Story of this Book
This section will contain the details of the crowdfunding campaign that was used for this book.
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