Bronson Chang, a native of Hawaii and 2010 graduate of USC, wanted to go back home and grow his uncle’s business. The business, called Uncle Clay’s House of Pure Aloha is an icon in the local community and is known for incredible homemade, all natural Hawaiin treats. Mr. Chang felt that he could take his Uncle Clay’s shop to the next level by opening more stores and introduce new products. There was only one small problem — despite the store’s popularity, neither he nor his uncle had the capital to grow the business. Instead of turning to traditional sources of funding like banks or venture capital, Mr. Chang used a relatively new approach to raising money called crowdfunding to raise the $54K he needed to expand the Uncle Clay’s House of Pure Aloha.
Crowdfunding uses the wisdom of crowds to help entrepreneurs, artists, writers, and non-profits raise money by allowing people to donate funds to support a project or business. It allows those who are seeking money, and those who have money to invest, the ability to take their cause to the community and share the risks among many. Additionally, it solves the problem of too few venture capitalist and too many entrepreneurs.
The process is relatively simple for both the entrepreneur and the investor.
The entrepreneur has a good idea. They present it online. Investors read about it and fund it. In most cases, because the selling of equity carries with it potentially strict regulations, the companies actually don’t give up any equity or incur additional debt. Instead, the entrepreneurs give out rewards for the money invested (investments are really not necessarily investments where there is implied return — but a donation).
The success of companies like Diaspora, a new open social networking site that plans to compete against Facebook, and the Million Pixel Project, where anyone could buy pixels on a website for $1 per pixel, are driving more and more entrepreneurs and creative types to rely on crowdfunding to raise money.
Here is a review of six sites that an entrepreneur may consider if crowdfunding seems like an option:
1. Startup Addict: a way for people to pool small amounts of money to back a good idea or project. Free registration for exchange of a 5% commission on successfully funded projects. It is a threshold based funding project where the investor receives the money only if the threshold funding level is met. If not, the money is returned to the pledgers. There is no exchange for profits, but instead, a reward from the founder (the founder can decide what she gives as a reward based on their own critieria). The founder typically has up to 90 days to reach funding for the project. Starupaddict allows for all kinds of startups to raise money, including non profits. Unlike many other crowdfunding sites, it is not just geared to the creative types.
2. Rockethub.com: Rockethub offers a creative an innovative way to raise money. Like eBay and Amazon, Rockethub is a platform for emerging artists and entrepreneurs to get funding for their projects. Like a lot of crowdfunding sites, Rockethub doesn’t allow entrepreneurs (whom they call Creatives), to give up any equity or shares in the company. Instead Creatives are responsible to give out rewards to those who fund the project (funders of projects are called Fuelers). Another innovative approach at Rockethub is the ability to earn badges. Badges can be earned by both Fuelers and Creatives for performing certain tasks on the site. As you unlock more badges by performing more tasks, like commenting on a project, or being the first to sign up for a project, then you are eligible for extra rewards.
3. Kickstarter.com: Again, like Rockethub, it provides crowdfunding for creative types on specific projects. A project is defined as something that is finite, with a clear beginning and end. Like many other sites, unless a project is fully funded, the entrepreneur does not receive any funds. Also, Kickstarter only accepts payment through Amazon ‘s Flexible Payments Services. Paypal, and credit cards aren’t allowed because Amazon’s FPS enables and protects all or nothing funding methods.
4. LendingClub.com: The company provides a unique lending platform by allowing members to directly invest in and borrow from each other, completely diverging from the traditional banking system and the complexity inherent in the system. The rates for borrowers can be lower than what a borrower may get from a bank and the return for investors, at least by the time of this writing, was 9.64%. Entrepreneurs have used LendingClub.com to borrow money to start businesses or to fund short term cash shortages where traditional financing may not be available. What’s also different about LendingClub is that the company uses Prime Consumer Notes to provide returns to their investors and that the investor and the lenders information are completely protected. The company also files SEC reports as it is seen as a regulated investment model.
5. Profounder.com: Unlike Kickstarter or Startup Addict, Profounder is almost uniquely dedicated to funding companies by finding investors who are willing to accept a share of the revenue as returns for the investment. Also, the company provides a startup with step-by-step tools starting with the organizational resources needed to prepare for the investment, creating the pitch, building the offer terms, and managing collection and payment of funds to investors. Unique to the site is also your ability to invite potential investors whom you already have a substantial pre-existing relationship. Where Profounder excels is in helping a startup create and manage documents that are essential to getting professional investment. It also provides a marketing platform (they build you a website) that promotes your business online and through social networks. Another great value is the ability to outsource the administration of your investment contract, including term sheets and investor payouts. Additionally, entrepreneurs can use the site for free to build their offer and even investment pitch.
6. Peerbackers.com: Another site that is geared towards entrepreneurs but unlike many crowdfunding sites, an entrepreneur can receive funding when 80% of the pledges are reached. Also, like most crowdfunding platforms, an entrepreneur is not allowed to sell shares or debt for the investment. Instead, the entrepreneur provides rewards such as samples of the products based on the size of the investment.
Paolo Narciso is an entrepreneur and author who writes about traditional and social entrepreneurship. You can read his blog at [http://www.paolonarciso.com]http://www.paolonarciso.com.
Article Source: http://EzineArticles.com/?Best-Crowdfunding-Sites&id=6378592