Crowdfunding is a way of financing a project by pooling the donations/contributions/purchases of many people. This has become an emerging method for inventors trying to raise money.
The New Law – for Investments
Today you can receive money, but you need to be very careful when taking money as an investment for small investors. Recently, the CROWDFUND Act (officially titled “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act”) was passed, which will allow private companies to raise up to $1 million in any 12-month period by selling stock through authorized crowdfunding websites. the rules for authorized sites are not yet implemented, so if you need to raise money for investments, you should keep an eye on the legislation until it is ready to be implemented.
How Crowdfunding Works
He posts to one of the sites a video that talks about his invention in the most intriguing way possible, and then lists how much money he’s trying to raise and what he’s offering. You can offer anything from a finished product once you’ve made it to a piece of your business, royalties on sales, or another offer you may be considering.
costs
4% – 6% if the inventor hits their goal, sometimes more if they don’t, plus credit card processing fees of up to 4%. If you’re looking at crowdfunding as a method of raising money, be careful to understand when you’ll get the money and what fees you may pay if you don’t raise enough money. For example, you may have a goal of raising $25,000. If you only raise $20,000, some sites will return the money to investors and charge you a fee. Others will give you the money but charge you a higher fee. And other sites may offer a different fee structure, so make sure you fully understand the fee structure before proceeding.
success story
Isaiah Coberly invented a new cover for the iPad, which can be folded into a variety of configurations for use on a lap, desk, airplane tray, and a host of other makeshift configurations. While Coberly had some prototypes and people were excited about the product, he didn’t have enough money to go forward. So he and his partner, Becca Iverson, decided to try online fundraising through Kickstart. They had an initial goal of $10,000 raised in 60 days and they reached that goal in 30 days and ended up raising over $20,000.
People who invested online received a thank you note for less than $500, and those who invested $500.00 received the promise of a hand-signed Flip Steady once the product was produced. Although not the final count, on May 13 the inventors received money from 224 backers totaling $23,242.00 for an average donation of just over $100.
Since raising the money, Coberly had received an offer from an investor to buy 35% of the company and another offer from someone who wanted to buy the idea. Coberly thought both offers benefited investors more than him and turned them down. He wanted to keep control of the company and where it was going.
points for success
- Check the site carefully and beware of the initial fees. Crowdfunding sites are being started by a wide variety of people and there may be some rogue sites trying to get money.
- Post a personal video – A personal video with an exciting cause or story will raise more money on crowdfunding sites.
- Show that you are in business – have your own website and other marketing activities to show that you are a real business. Focus group sessions, attending trade shows, and having booths at local fairs are all ways to show that you’re not just trying to raise money, but also start a viable business. A crowdfunding campaign without proof that this product, service, or startup actually exists will have a hard time raising money.
- Don’t assume you’ll get on the site: Kickstarter only accepts about 60% of ideas submitted, so take the time to prepare initial information that shows you’re serious about getting into the business.