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We are living in an age where we are more connected with each other than ever. The transition from the analog media to digital media has allowed a vast amount of ideas and values to spread on the social network. One result of this new outlet of connected people is the striking evolution in crowdfunding. Crowdfunding is a new investment strategy where anyone, from a savvy entrepreneur to an average person on the street, can get funding for their new project or business idea from anyone. Anyone can turn their business idea into a reality by soliciting funding from people who are as passionate about the idea as the visionaries who start the companies. Crowd sourcing can fund projects from art to games, and food to technology, as our chart here in shows. The Internet has allowed for a new, more personal, investment strategy and a way for anyone to financially support what they believe in. This is another way the internet has given every person a voice and role in what is going down in our society.
Are you a fan of the TikTokWatchBand for the iPod Nano or the ElevationDocks for the iPhone? These are just some of the successful crowd sourced projects that have been funded on Kickstarter, the world’s leading platform for crowdfunding projects. Kickstarter, launched in April, 2009, is one of the first and most successful crowdfunding websites to connect entrepreneurs, many of whom have failed to find money from traditional sources, and people who want to invest in their good or service. Unlike venture capitalists or angel investors, funders do not ask for ownership in the business. Instead, they seek something in return, such as a discount on the new product or some recognition. Thus, crowdfunding allows entrepreneurs to connect with those most interested in their product or services and maintain ownership of their new business.
Setting up project pages on Kickstarter for fundraising is free. Any individual can create a profile on Kickstarter and apply for funding, as long as they have a sound project. The funding goal should be the minimum amount needed to complete the project. So far, the average amount raised for a project is around $5,000. The projects are all-or-nothing, meaning that if the desired amount of funding is not raised, none of the investors are charged and the project receives no money. As of April 2012, Kickstarter has helped fund over 23,000 projects totaling over $207 million. Kickstarter accepts only 60% of all the projects that apply each week, but other crowdfunding websites like Indiegogo and Profounder accepts any project as long as it is not illegal. Some of these sites are better suited for individuals with specific goals. For example, microventures.com is the way to go to if you are a tech firm seeking experienced angel investors.
Crowdfunding opens up the door for the average American with a novel idea to find their base of supporters. For example, Kristy Lewis, a women entrepreneur, and her husband Coulter began fundraising for their food project through Kickstarter. They wanted to reinvent microwave popcorn by taking out all of the chemicals and replacing them with only the natural ingredients and fun flavors. The campaign successfully raised $27,880. or 278% of the original amount of funds that they had initially asked for. With the help of 755 supporters, the couple was able to bring Quinn Popcorn into an already established market.
There is a huge opportunity for entrepreneurs because today they can now easily raise capital while keeping complete control of their idea and business. Crowdfunding allows entrepreneurs to market and find funding for their business all in one. Entrepreneurs can test out the demand for the product or service before bringing it to the full, competitive market. If the fundraising fails, chances are it would not survive in the market. However, if the fundraising is successful, the early stage companies have a built in market waiting to use and promote their business. Crowdfunding, through sites like Kickstarter, brings investing to the age of the Internet and social media.
This article was written by Erin Gillingham from Columbia University and Min Jung Yoo from Brown University, summer interns at JumpThru. Read more about them here.