A New Way To Raise Money

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Crowdfunding
New way to fund your ideas
In our materialisticworld,havingadreamto start a businessof ourownis quite expensive. A person
needsgreatdeal of moneytotake off.If youhave aperfectideafora business,butlackcapital tomake
it come to life,thencrowdfundingcouldbe justwhatyouneed. Itis anotherboomingindustrywhich
facilitates fundstootherprojectsorventures tostartoff.
What is Crowdfunding?
Crowdfunding isa way of raising finance fora projector ventureby asking a large numberof people
each fora small amountof money. Itisa collective effortbypeoplewhonetworkandpool theirmoney
together,usuallyviathe Internet,inordertoinvestinandsupporteffortsinitiatedbyotherpeople or
organizations.
Crowdfundingisa place where everyone can come togethertofunda creator’s dreamproject. It
switchesthe ideaof askingafewpeople forlarge sumof money. Internethasbeingused asaneffective
tool overhere to talkto thousandsof potential funders. Itgivesentrepreneuran abilitytoraise money
froma collectivegroupof people whoare connectedthroughthe internetandwanttosupportyour
project.
How it works?
The crowdfundingmodel is fueledbythree typesof people:the projectinitiatorwhoproposesthe idea
or projectto be funded;individualsorgroupswhosupportthe idea;anda moderatingorganization(the
"platform") thatbringsthe partiestogethertolaunchthe idea. Those seekingfundswillsetupa profile
of theirprojectona website andthencampaignisrunby the crowdfundingsites.Projectcreatorcan
approach colleagues,peers, family,friendsandevenstrangersthroughacampaign.

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DifferentTypesof Crowdfunding:
1. Rewards Crowdfunding
Rewards-basedcrowdfundingplaysanimportantrole insupportingandfundingideas,creative
concepts,andnewerbusinessesorprojects.It’sagreat wayto getan ideaoff the groundandbuilda
brand and community. Peopleinvestsimplybecause theybelieve inthe project.Rewardscanbe offered
such as acknowledgementsonanalbumcover,ticketstoan event,regularnewsupdates,free giftsand
so on.Returnsare consideredintangible. Thisiswhere people canpre-purchase products,buy
experiences,orsimplydonate.While thisfundingmayinsome casesgotowardshelpinga business,
fundersare not allowedtoinvestandbecome shareholders.
FamousrewardbasedCrowdfunding websites are:
Kickstarter, IndieGoGo, Rockethub, Peerbacker, appbackr, Invested.in

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OculusVR,a virtual realityheadsetmaker,soldtoFacebook in2014 for$2 Billion.Itusedrewards-based
crowd fundingtopre-sale itsvirtual realityproduct. Before FacebookpaidtobuyOculus VR,9,500
people donated viaKickstartertogetOculus off the ground.Those earlydonorsgotthank-younotes, T-
shirtsor prototype headsets.DonationsthroughKickstarterare justforrewardpurpose not
investments.
Types ofStrategy for Crowdfunding:
Rewards-basedcrowdfundingcampaignsare commonlyofferedinone of twomodels.
 KIA(Keepitall)
Here the entrepreneurial firmsetsafundraisinggoal andkeepsthe entire amountraisedregardlessof
whetherornot theymeettheirgoal.Here there isa riskto the crowd thatan underfundedprojectgoes
ahead. Small scalable projectsare more likelytobe fundedthroughthe KIA scheme.
 AON(All orNothing)
The entrepreneurial firmsetsafundraisinggoal andkeepsnothingunlessthe goal isachieved.Potential
investorsinclinedtowardsAON,assubstandardproductare not releasedif the fundinggoal isnot
achieved. ItalsoProvide detailinformationaboutthe campaign. Large non-scalable projectsare more
likelytobe fundedthroughthe AON scheme.
2. Equity Crowdfunding
People investinanopportunityinexchange forequity.Moneyisexchangedfor shares,orfora small
stake inthe business,projectorventure. Equity crowdfundingallowspeople tobecome shareholdersin
a company.Equitycrowdfunding becamelegal whenPresidentObamasignedthe JOBSActonApril 5,
2012. It hasopenedupthe opportunityforentrepreneurstopubliclyadvertise forinvestment,andfor
accreditedinvestorstoinvestonlineviaequitycrowdfunding.
FamousEquity basedCrowdfunding websites are:
Bitvore isa cloudcorporate database.Theyprovided ananswertothe bigdata dilemmafacedby
businesses.Thisinnovative project launchedanequitycrowdfundingcampaignon Fundable.They
closeda $4,500,000 roundto furtherdeveloptheirproduct.
3. Debt Crowdfunding
In debtCrowdfunding,investorsreceivetheirmoneybackwithinterest.Alsocalled peer-to-peer(p2p)
lending,itallowsforthe lendingof moneywhilebypassingtraditional banks.Returnsare financial,but
investorsalsohave the benefitof havingcontributedtothe successof an ideatheybelieve in.Inthe
Fundable,Crowdfunder, Micro Ventures, Angel List, Circle up, Grow Venture Community

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case of microfinance,whereverysmall sumsof moneyare leant tothe verypoor,mostoftenin
developingcountries,nointerestispaidonthe loanand the lenderisrewardedbydoingsocial good.
These Platformsgainedpopularity,asbanksincreasedinterestratesorreducedtheirlevel of lending
activity.
FamousDebtbasedCrowdfunding websites are:
4. Charity Crowdfunding
Charitycrowdfundingisthe collectiveeffortof individualstohelpcharitable causes. Here donors
have a social motivationforputtingtheirmoneyinandexpectnothingback,exceptperhapstofeel
goodabout helpingthe cause.
FamousCharity basedCrowdfunding websites are:
These crowdfundingwebsite are spreadacrossdifferentgenre too.There are some crowdfunding
websiteswhichare speciallymeantforspecificgenre of businesslikeSellabandandPledgeMusicfor
Music, AppbackrforApps etc.
Kickstarterand Indiegogo.comare well-knownwebsitesforcrowdfundingacrossthe world. Kickstarter
isbasedon AON strategyof rewardfundingwhile IndiegogoisbasedonKIA strategy.
FamousProjectsby Kickstarter:
Kickstartercharges5% fee foreverysuccessful project.AsAmazonPaymentisusedtoreceive the
fund,Amazonwill applycreditcardprocessingfees,whichare 3-5% of the raisedprojectfund.
 A dock made for the iPhone designedbyCaseyHopkinsbecamethe firstKickstarterprojectto
breaka milliondollarspledged.A few hourslater,aprojectby computer game
developersDouble Fine Productionstofund a newadventure game reachedthe same figure
and finishedwithover$3 millionpledged.Thiswasalsothe firsttime Kickstarterraisedover a
milliondollarsinpledgesinasingle day.OnAugust30, 2014, the "CoolestCooler",an icebox
createdby RyanGrepper,became the mostfundedKickstarterprojectinhistory,with US$13.28
millioninfunding –breakingthe recordpreviouslyheldbythe Pebble smartwatchproject.
Lending Club, Prosper, SoMolend, Endurance Leading Network
GoFundMe, Razoo, Crowdrise

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FamousProjectsbyIndiegogo:
Indiegogowillget4%fromeveryraisedfund,and3% will be chargedforcreditcard processing,plus
$25 wire fee fornon-U.S.campaigns.If aperson appliedforaFlexible Fundingplananda campaign
failedtoreachthe goal,Indiegogowill charge 9% of the fund,but creatorscan take the remaining
fundsaway.
 The Canary Smart Home securitysystemfoundcrowdfundingsuccessonthe IndieGoGo
platforminsummerof 2013. Over$1.9 millionwasraisedin34 daysfor the device,which
containsan HD videocameraand multiple sensorsthattrack everythingfrommotionto
temperature andairquality.
 Let'sBuild a Tesla Museumcampaignto buyback NikolaTesla’s(greatestGreekengineerand
inventor) oldlaboratory,raised$1.3 millionfrom33,253 funders. Theirgoal was$850,000.
Ref:

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http://www.nytimes.com/2014/03/30/opinion/sunday/how-to-harm-investors.html
http://www.maximumpc.com/three_kickstarter_alternatives_2014?page=0,2
http://www.ukcfa.org.uk/what-is-crowdfunding
http://www.hongkiat.com/blog/crowdfunding-sites/
http://www.shopify.com/blog/8071463-the-top-5-crowdfunding-sites-for-your-next-big-idea
http://didattica.unibocconi.it/mypage/upload/49036_20110414_125339_JOSM_CROWD_FINAL.PDF
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2447567
http://www.forbes.com/sites/chancebarnett/2014/05/01/2-billion-facebook-acquisition-raises-
question-is-equity-crowdfunding-better/
http://www.forbes.com/sites/chancebarnett/2014/08/29/crowdfunding-sites-in-2014/
http://www.forbes.com/sites/wilschroter/2014/04/16/top-10-business-crowdfunding-campaigns-of-all-
time/