Crowdfunding, as its name suggests, is a funding method where common people like you and me, henceforth the crowd, fund your personal or business project with their own money. There’s a term that we commonly use to describe this money-giving action; it’s called a donation.
Instead of traditional investors, crowdfunding campaigns are funded by the general public. Typically, most successful projects receive about 25-40% of their revenue from their first, second and third degree of connections. This could include friends, family, work acquaintances, or anyone that the owner is connected to, including their second and third degree connections. Once a project has seen some traction, unrelated consumers start coming out of the woodwork to support campaigns they believe in.
Crowdfunding is in its infancy. Here’s a look at three trends expected to emerge.
1. More groups use crowdfunding to support innovation challenges to solve complex, social problems. Communities will increasingly come together to raise a pot of money to award to an entrepreneur that solves a problem, says Chance Barnett, the co-founder of Crowdfunder, a Venice, Calif.-based crowdfunding platform. “That might be solving poverty in an area, it might be building a mobile solution for people in developing countries who don’t have the ability to do accounting in a very basic level,” Barnett says. “We will see a lot of innovation come out because of crowdfunding because people are willing to put dollars up to solve big problems.”
2. Increased popularity of local, crowdfunding communities. Amateur investors often prefer to meet the entrepreneur they are backing face-to-face, says Barnett. That’s the idea behind his newest venture, CROWDFUNDx, which launched last week. It’s an online network that brings together leadership boards in 11 cities across the U.S. and in 12 cities in Mexico to run 120-day startup challenges culminating in a pitch contest. The local community then funds the winner through crowdfunding.
3. Women entrepreneurs stand to raise more investment dollars. Women get 5 percent of all investment capital, says Barnett, but they will have increased access to funding with crowdfunding. “Not only are women more active on social media, they are often more collaborative when they do invest, so it is going to be a really interesting space and it is going to be the perfect place for women to gain a lot of traction,” Barnett says.
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