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CrowdFunding Could Help Save the American Economy

“Revolutions happen fast, but dawn slowly.” This is how Jon Gertner characterized the innovation and resulting leapfrogs in technology that came out of Bell Labs (the research and development arm of AT&T) during the last century. I believe that crowdfunding for equity will follow a similar trajectory.

Donation CrowdFunding for Causes began in earnest just four years ago, with the launch of IndieGogo followed by Kickstarter. Used mostly to generate support for the arts (films, bands, theater) and local organizations, these types of campaigns have been highly effective, raising $784 million in funding during 2011 in North America.

Donation CrowdFunding for Startup Products, the second generation of crowdfunding, saw its first notable success in 2011 with Tik Tok, a nano watchband that raised nearly $1 million. Since Tik Tok, several for-profit startups have used the same sites to raise early capital in exchange for products, including:

On Kickstarter alone, over $27 million has been raised to date this year for startup game companies.

What makes these companies different from cause-oriented campaigns is that they are for-profit companies that, in many cases, can’t get financing from the traditional means, i.e., personal funds, angel investors, banks and venture capitalists. Donation crowdfunding is fast becoming a way to create buzz, prove customer interest and gain manufacturing experience, but it is not a substitute for scaling a company for launch. While additional capital is still required for the launch stage, a successful donation crowdfunding campaign can increase the odds of obtaining launch funds in the future.

Equity Based CrowdFunding for Startups and Small Businesses is the next phase of crowdfunding. By allowing people to invest in embryonic businesses they believe in, may utilize, and will likely champion, crowdfunding could foster major innovation. Once launched, startups will be able to raise up to $1 million in capital to actually fund the business, not just the cost of building a few thousand widgets in exchange for a donation. With time, members of Congress are hoping to increase the annual allowable fundraising amount to $5 million.

Some argue that equity based crowdfunding is too great a risk for the average American while others point out that they are already taking risks with their money.  Americans purchase $45 billion dollars worth of lottery tickets annually, with the average household spending $150 annually. The odds of winning the lottery are one in 175 million according to Aaron Abrams, a mathematician at Emory University.  People lose their money nearly every time, yet hope keeps them coming back. The stock market offers better odds but, as we have seen in recent years, can be financially disappointing. Total assets invested in stocks, bonds, mutual funds, pension funds and insurance funds equal about $30 trillion according to the economist Michael Shuman.  Today’s college students are incurring an average debt load of $25,000 in hopes that they will pay it back from future jobs, yet nearly half of recent college graduates are unemployed.

Bottom line: many Americans are already taking risks with their money, hoping to hit the jackpot. Crowdfunding for equity will create opportunities for direct investment in local business and/or exciting and innovative startups that people can influence with the power of their network and collective buying behavior.  Jobs will be created from this and in some cases there will be a nice payout

We are seeing a transformation in how Americans bring their ideas to fruition with the evolution of crowdfunding campaigns. When the new securities laws are complete and equity based crowdfunding is legal, there will be a sea change in how entrepreneurs can finance their companies. A few early adopters will most likely lead the way (as is happening today with crowdfunding for products), followed by a new age of innovation and small business growth.

To learn more about making equity-based crowdfunding happen ASAP, click here.

Next week, CareerFuel’s blog delivers insight into how two successful companies, tiltpod and the Bia multi-sport GPS watch, used crowdfunding to build their first products.

For more on crowdfunding, read here. To learn about funding options for startups and small businesses, watch and learn from angel investor Judy Robinett.

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  • http://www.fmlcoach.ca Fraser Liscumb

    Will crowdFunding help. Yes Will it fix the underlying problem of a system too far out of balance. Based on a Gold Rush mentality already in place on a Global scale and a system designed in a time when looking after self interest was the only thing that was important and created by those that understood that if you did not have a means to keep the balance. Then at sometime or another. A few win and the community loses. Only to find out the Global communication system created a Global community and economic system and what was. Was never designed too handle the realities that come when you live in a world that requires torence and a team effort to create a means too accept that we are now part of something we still have too many immature Global leaders. Still ingnorent enough too see the simple reality.

    Whether we want it or not we how belong to a Global Community and every country bar non is now dependent on every other countries for their on going prosperity for all of its citizens. Not just a privileged few. That will require not changing what we do, but how we do it. Too assure money is not the only driving force and greed and self interest do not remain in the driver seat. As it is now. Using simple economic and Busines 101 principles. To allow everyone too become all that they can, but assure on going prosperty. By being part of a Sustaianable future. Based on one understand we do live on a very small plaent and if we are going to travel the star it will have too be as a united Global Community. Or we will be forced at one time or another too unit. Due too those that believe money is the only thing that has value and looking after self interest at all cost has limited everyone future.

    The key too the futre has little too do with now much money you have. If it did the G7 would not be in so much trouble and the second shoe of the recession would not be on its way. That to adres the problemwill require a Gold team effort to restore and then maintain balance. As we do live in Univrse that has only two rule. Everything too function requires balance or what every the imbalance is attached too will be distroyed. so that it can be replace with something that assure the problem will not happen again. The other rule is even simpler. Everthing in this Univrse requires change in other to become all that it can and have the ability too adapt to change or go the way of Doo Doo bird. Humans are the only ones that would rather distroy what they have rather than change. Yet, the change they do not what always comes. Even when they put up a wall too try and protect what they see has unchangable. Soon come too realize the hard way the young see litle or no value in remaining in the past. As they are the ones being limited by old ways of thinking, but if smart learn by what went on in the past not too allow history to be reaped. Again by finding a balance between what was and what is required too bring the community into the 21st century. Trying too not too create more problems than the problems they are trying too fix to help create a sustaianable future. If luck change does not come over night, but overtime. To allow every a reasonable time too see how too become part of the solution and not remain or create an even bigger problem down the road.

  • http://www.facebook.com/wmcunningham William Cunningham

    I think crowdfunding will be a major boost to economic activity. See my new book: The JOBS Act: Crowdfunding for Small Businesses and Startups. http://www.amazon.com/The-JOBS-Act-Crowdfunding-Businesses/dp/143024755X

    Also see our crowdfunding webinar: jobsact.eventbrite.com