Crowdfunding – Risk or Opportunity?

Crowdfunding, as embraced by Title III of the Jumpstart Our Business Startups (JOBS) Act, is the practice of raising funds for a project or venture through the solicitation of a large number of people that they do not know (and are unlikely to ever meet), usually via the Internet through social media and other channels.

Not likely to come into effect until next year, some have touted Title III as being the rescuer of the American startup. Crowdfunding will give our country a much-needed economic helping hand, generating revenue in an otherwise sluggish economy and pumping fledgling businesses full of life-giving cash. This has the knock on effect of motivating entrepreneurs to continue creating, innovating and providing jobs, even in the slow economic times we are currently experiencing.  At VerifyInvestor.com, we believe that Title III as it is currently drafted is unlikely to be very successful, but we’re optimistic that improvements to it might make it a very powerful tool for startups.

People Funding People

A huge part of the appeal of crowdfunding is that it’s a grassroots type of fundraising. It is, quite simply, people funding people. Most of any funding raised is donated, invested or loaned directly to the owner of the business wanting to raise the capital.

Crowdfunding means fundraising is no longer such a tedious (not to mentioned time-consuming and expensive) process. This in turn allows startup business owners to spend more time where it matters – on their business. It also levels the playing field – entrepreneurs from humble backgrounds are now able to secure funding.

Another huge tick in the crowdfunding column is that it means entrepreneurs with complicated or niche business ideas, which may have had a problem securing funding through more conservative and traditional channels, are now able to solicit funds directly from like-minded individuals through more directly targeted methods such as social media.

The downside of this is, however, that many crazy ideas with no chance whatsoever of success, will receive funding from risk-taking kindred spirits. More ideas already get funding than can possibly ever make money and crowdfunding will simply add to the numbers of ideas that never take off. Too many failures will see tighter restrictions being placed on crowdfunding.

All investment carries a degree of risk, and crowdfunding is no different. However, there is no doubt that it is here, and set to radically alter America’s entrepreneurial and investment landscape.