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Crowd-Funding as a Source of Assets

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The traditional way to raise funds for most businesses included:

  • Using one’s own funds (savings or the money the owner is able to generate and apply to the needs of the business
  • Relying on friends, neighbors, or family to either invest in the business, loan, or gift to the business owner
  • Going to banks or lending institutions for loans that often have restrictive re-payment plans
  • Selling stock in the company

However, there is an emerging approach to funding businesses that is gaining traction – Crowd-Funding.  According to Wikipedia, crowd-funding is defined as: “the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.”  While the reason for funding can be anything from charitable activities to personal requests; crowd-funding as a way to generate money for business purposes is based on the strength of the idea or the belief in the owner to create a viable business.  Some of the frequently sourced sites for crowd-funding are listed at http://www.practicalecommerce.com/articles/2853-13-Crowdfunding-Websites-to-Fund-Your-Business.  The use of the internet allows funders and those seeking funding to connect with each other (often without having any personal contact or engagement outside of the websites).

Gumdrop Swap revisited

I recently connected with a business I have profiled previously, Gumdrop Swap (a retail business that puts a spin on consignment and focuses on maternity and children’s clothing & other necessities.)  http://www.gumdropswap.com.   As that business continues to grow, they have outgrown their current facility and are looking to move into a larger footprint.  To allay some of the concerns around the costs of the move, the business has begun to investigate the worthiness of crowd-funding.

In a recent blog post written by the business owner some of the issues were surfaced http://gumdropswap.blogspot.com/2012/08/peerbackers-vs-indiegogo-for-crowd.html.  Among the concerns mentioned were :

  1. the fees associated with the use of the service (ranging from 3% up to 9%).
  2. The restrictions on what can be funded (projects vs. “life” issues, business vs. personal, etc.).
  3. the ease of use of the systems to incorporate graphics, be listed in web searches, or other “back-end” issues.
  4. Whether the money raised is to be returned if targeted amounts are not reached or if it can be retained by the person/business seeking the funding.

Crowd-Funding allows business owners to connect with prospective investors to raise funds.

To participate in helping Gumdrop Swap reach their goal of raising funds to allow for the move to the new location in Bridgeport, you can contribute at link http://peerbackers.com/projects/help-gumdrop-swap-maternity-kids-boutique-finish-moving/. or at http://www.indiegogo.com/p/199621.

Caution is the Word

As with any investment, crowd-funding opportunities should be assessed and evaluated with regard to the success criteria used to determine the appropriateness and likelihood of any other expenditure.  SCAM artists can seek to take advantage of unsuspecting investors and one should proceed with caution before making any investment.  Although not essential, crowd funding often relies on local customers supporting their local businesses and so there is an element of familiarity and trust.  However, it is still a business investment and should be viewed as such.

Categories: General
David Zahn

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4 Responses

  1. Great to hear that gumdrop was able to get funding through crowdfunding. Now, next year, when the crowdfunding piece of the job act goes into effect, small businesses will be better able to raise more money from more people via the crowd. Can’t wait until we see more success stories from these businesses.

  2. Small-scale projects by independent companies or individuals usually go to crowd funding to finance their projects. It is a great way to start a project without the strings attached from big corporations.

  3. If you need a business funded crowd-funding is ideal. The greatest in my opinion of the platforms that deal with this is one in particular FundersCloud.com. They have helped me immensely, they have the best technology out there and are looking to fund businesses.

  4. TV Led says:

    Everything is very open with a very clear explanation of
    the issues. It was definitely informative. Your website is very helpful.
    Thank you for sharing!