CrowdFunding, in its simplest form, is bringing together a large number of people to financially support businesses or projects. Rather than the traditional forms of business financing involving large sums of money being transmitted from a small number of investors, CrowdFunding allows hundreds or even thousands of contributors to fund as little as $1 to support a cause. In 2013, the power of social media has never been stronger, which is a vital part to CrowdFunding. CrowdFunding allows businesses to access their social influence to reach out and seek financial support from those interested in their company or project.
CrowdFunding has a few different models within itself – donation, rewards, and soon-to-be equity. The current crazes we hear in the media are being funded on donation and reward-based platforms. This means that for a financial contribution, each financial contributor will receive a reward as compensation. Rewards range from a new tee shirt, a ‘thank you’ on the company website, to being able to name a character in the company’s upcoming video game or movie. The rewards offered are all dependent on what the founding members decide to supply as rewards for each suggested financial contribution level.
The newest model of CrowdFunding is equity CrowdFunding. Equity CrowdFunding allows investors to invest their dollars into startup businesses in return for an equity stake in the company. The beginning of the equity CrowdFunding world all took place on April 5th, 2012 with President Obama’s signing of the JOBS Act into law.
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