SA Crowdfunding Blog

Wednesday, 29 August 2012 15:37

How to Fund a Project with Crowdfunding

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It has never been easier to take part in business investing through a group effort to fund a project, and the choices are so varied. Before crowdfunding came onto the scene, investments were in basic commodities and many "safe" ventures with low returns. When you fund a project, it can follow almost any type of endeavor you have an interest and belief in, from household appliances to movies.

Nothing is guaranteed. As we all know from recent events, no investment is a sure thing. Consider the recent FaceBook IPO. This only goes to show once again how volatile stocks can be.

Two Primary Forms of Crowdfunding

Crowdfunding works in two primary ways. Some companies strictly solicit people to fund a project, supplying the seed funding for startup, without having a specific product, service, or idea to promote. This gives the investors a reasonable idea of where their money will be going, but some things remain undecided.

What entices investors into this scenario is how well the crowdfunder sells itself. This often comes from success in other crowdfunding efforts that build a reputation. There may be a board of trustees who choose the actual recipient(s) for the funds under this kind of crowdfunding.

The second primary way to fund a project is to know exactly what you are investing in. Usually, a firm is in charge of raising the money needed, and its other place in the investment scheme is to educate investors in both what they can expect to receive on return and what the associated risks are.

Investors may know the person or group personally for whom the money is being raised. Often, an investor feels so strongly about the possibilities of a new product or service that they will take the lead in the crowdfunding effort. There is no license necessary to solicit people to invest.

Crowdfunding is Spreading

If you choose to fund a project through crowd source financing, you will be among the growing list of investors who have grown tired of Wall Street style based buying and selling. Collectively, the group may be wiser than a single or group of investment professionals.

Once you've decided to fund a project, it is probably a good idea to approach a crowdfunder organization and ask questions about the different causes they represent. Don't make a commitment until you find the right vehicle for your investment, but listen to what is available. Ask questions so you know as much as possible about any opportunity that might appeal to you.

Do It Yourself - If You Dare

Depending on your own circle of friends and associates, you might want to test out a crowdfund of your own. If you know someone who needs capital to get a start and you really believe in the person and the offering, there's nothing to say you can't do it yourself. You will need to keep in mind the legal aspects of the situation and understand how to structure the crowdfund before you actually handle any money.

Keep in mind that crowdfunding is a bit of an art and there are producers out there that have experience and connections. Even if you find yourself capable of raising capital in this manner, there are rules and regulations that must be followed, and the professionals will know what these are.

It is unlikely that crowd source funding will go away anytime in the near future. This type of funding is relatively new to South Africa, but it is beginning to turn up on many fronts. It may become the standard way of doing business within the next five years, so it is a good idea to get to know a little bit about it now.

Read 2116 times Last modified on Wednesday, 29 August 2012 17:49
Ben

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