Crowdfunding, Crowdsourcing, Groupfunding and Socialfunding- these words have been buzzing around a lot these last few months. Actually, whether or not you know what they mean, you’ve probably at least heard the terminology.
If you search the term online, there are a lot of different definitions, laws and technical explanations. Amongst this huge bombardment of information, there seems to be one thing all the sources agree on. It is revolutionary.
What is it?
At its heart, Crowdfunding in all its forms refers to one simple concept: getting small profits of money from a lot of people to create funding for a specific project.
The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
When you look at it that way, it’s not all that revolutionary. Or that new – Crowdfunding (at its most basic form) has actually existed for a long time. Every time anyone asks for donations to support a product, an event or even a charity, it is essentially crowdfunding.
If it’s been around for so long, why is it just in the news now? Well, things changed two years ago. The President of the United States passed the CROWDFUND Act in April of 2012. This makes it possible for Crowdfunding to be used by For-Profit users.
Since the United States can, in most circles, be considered a world leader, this act influenced the rest of the world.
As a result, a start-up invention or company can now turn to the public; to everyday people for investment and money. Essentially, strangers who are unknown to the entrepreneur can invest in their idea. Entrepreneurs who have typically been rejected or ignored by traditional banking and investment markets suddenly have a way to get their idea out into the world.
This is why it’s revolutionary. It levels the playing field so everyone has a chance to have their ideas heard and shared.
Suddenly it’s not all about profits. People don’t invest in Crowdfunding because they are hoping to make it rich off of their investment. Most people are limited to $2000 are year when it comes to giving money. Even the richest people can only donate about $100, 000.
So why do people do it?
The simplest answer is, people invest in Crowdfunding projects because they really love the idea the entrepreneur is introducing, and they want it to succeed.
The question is, where will these ideas take us, and how will redefine how investing and business are done in the future.