If you have aspirations to be an entrepreneur or inventor, you know that one of the hardest things to do is to get enough capital to make your invention or business a reality. The traditional path has been to get a loan (or several) from a traditional bank, find a benefactor willing to back you, borrow from friends and family, or work three jobs to bring in enough income to finance your venture until it takes off. But thanks to the Internet, there are now other options.
A new phenomenon called “crowdfunding” has emerged. Like crowdsourcing that uses the power of the Internet to bring together large groups of people to do odd jobs, crowdfunding uses the power of the Internet to bring together large groups of people with small amounts of money to collectively back a venture. Basically, the person looking for funding posts an appeal on a crowdfunding website and people interested in backing the person contribute money to the cause. Sometimes no payback of the money is required. It’s simply generosity from one person to another. Other sites have specific payback arrangements, while others use a revenue sharing model. Almost all of them charge fees in some form, so make sure you understand your costs before you enter into any agreement. If you want to try this funding route, here are three websites to consider:
Profounder.com: This site is for those who want to open or expand a business. You first do some business planning, risk analysis, and forecasting on their site and then you set your investment terms. You will specify how much revenue you want to share with your investors and for how long. If people believe in your concept and like the revenue sharing model you’ve set up, they may choose to invest in you.
Rockethub.com: This site is more for creative types who want to write a novel, make a movie, record an album, or create some other artistic project. While the site will also support other endeavors, creative types are the most prevalent. You describe your project and then set a financial goal and a timeline within which you will raise the money. Users give you money if they like your project. Rather than receiving money or revenue from you upon completion of your project, your donors will receive “rewards.” This is usually the finished project (CD/DVD, etc.), tickets to see the finished project, or similar items. You do have to pay a percentage of your total funds raised to Rockethub.
Quirky.com: This site is for inventors who think they have the next big thing. You submit your idea to Quirky.com for a $10 fee. The idea is posted on their site and other users vote on whether it’s the best idea of the week. If you win, Quirky will design, engineer and manufacture the item and then sell it on their site. You share revenue with the people who helped develop your idea. If you lose but still believe in your idea, you can resubmit for the next week by paying another $10. Unlike the other sites, this one is more of a gamble. You aren’t just relying on other people to give you money, but you’re betting that enough people will like your idea to vote for it above all the others.
These are just three possibilities. There are other options out there. As with anything on the Internet, you need to do your research before committing to any sort of money-related program. Do your research to make certain that the program is legitimate and not a scam. Make sure you read the fine print and that you know exactly what each party is responsible for. Do you have to pay back the money? How long do you have to do so? If anything seems off or fishy to you, find another option.
If you are giving money to someone on one of these sites, make certain you understand what, if anything, you’ll get in return. Will the money be paid back? If so, when and how much? Are you simply donating with no payback required? How will any revenue sharing models work and what happens if the venture never makes any money? Make sure that you’re okay with the answers to these questions before you give money.
It is possible to get other people to pay for your ventures without agreeing to usurious loan terms or begging family for help. Just be careful when using crowdfunding options and know exactly what you’re getting into before accepting or giving money.
I’ve considered crowdfunding for my ideas, and it’s still high on my list.
Very true. My spouse is a wanna-be film maker and we have watched most of his like-minded friends get financing from parents or credit card debt. The film maker types don’t tend to be very business or money savvy. On the flip side, my dh is very business oriented, and money conscious. Anyway, my spouse has told me many times over the years that he would not put a cent into his own films, or ask friends or relatives. It is relatively easy to get funding. (Some film specific sites to ask for money, etc.). I do get the sense that internet makes this a very different world for this type thing (than say, a decade ago!)
Great Article. I learned about Quirky which I had not known about. We have interviewed several people that have used Kickstarter and Profounder etc. There is still fundamentally one major catch to crowdfunding – the high majority of the deals/projects do not attract eyeballs on their own and, therefore, most entrepreneurs need to drive the high majority of traffic to get their project/company funded. Raising money is a major contact sport, no matter what tools you use to help get it done. For whatever that’s worth… Patrick