You’ve got a great idea for an eco vacuum cleaner. Or you need financing for an artsy project like re-cording a ska album, publishing an alternative lifestyle magazine or producing an all 80’s film festival. Maybe the film festival project can wait. The point is you might be an entrepreneur, artist, or just a regular person with a great idea and can’t get it off the ground because you don’t have access to financing.
It used to be that you had to rely on the three F’s, friends, family and friends of family. For too many reasons to get into, it always isn’t a good idea to go around asking all of your relatives and friends for money. Even if they agree to loan you some money, the added burden might not be worth it in the long run.
Enter crowdfunding, which is another way of leveraging the “crowd” or the three F’s and one new S, strangers. You post your project on one of the more than 450 crowdfunding platforms worldwide and you wait for the money to roll in. According to crowdsourcing.org, $1.5 billion was raised in 2011 through crowdfunding.
There are three types of crowdfunding activities that are legal in the U.S. and Canada. Reward-based or using perks is one type of crowdfunding to get sponsors to contribute. For example you would grant certain perks i.e. a free t-shirt, a free version of the video game etc… Then there is donation-based which means if someone likes your idea enough, they just GIVE you some money.
The third type is lending-based crowdfunding which is just borrowing
money from strangers. Equity-based crowdfunding isn’t yet legal in the US or Canada because it involves issuing equity, and providing disclosure which would necessitate the involvement of the Securities Exchange Commission and the Canadian provincial securities commissions.
In the US, the JOBS Act, which outlines the specific rules for equity financing was signed into law by President Obama on April 5, 2012. The SEC has 270 days from the enactment date to set forth specific rules and methods to ensure that funding will actually take place. So we’re going to find out within the next 6 months exactly how the rules will apply.
But that’s not why you’re reading this article. You want to know how to raise funds through crowdfunding. This is where your thousands of friends on Face-book and Twitter are going to come in handy. You should tell everyone about your campaign and keep telling them every time you’ve raised some money. Don’t forget they have their own personal network which could contribute to your project.
Write a press release and send it to publications and websites that you think would be interested in your story. They’re always looking for an interesting story, so make sure that yours is!
You shouldn’t forget to show sponsors how you’re going to spend their money and what they should expect in return.