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Internet funding launching startups

June 18, 2012

Have you ever heard of crowdfunding? It could be the next way you fund your start up business. Learn what its about and how its changing the landscape of small business funding.

Business Tips Article
By: Traci Jordan, ASU-SBDC International Trade Office Graduate Assistant

 

SAN ANGELO, Texas — When it comes to financing available to small businesses, there are various options.

The most traditional and common options are conventional and Small Business Administration guaranteed loans through lenders. However, a new financing source known as crowdfunding has created an additional possibility for the small business community, sparking interest and providing entrepreneurs with new opportunities.

Crowdfunding is a relatively new option in which entrepreneurs use an Internet-based launch site in order to promote their innovative ideas. These ideas range from business ventures to science experiments, and include proposals from various people such as artists, poets, singers, songwriters, politicians, dancers and philanthropists. In essence, there are no limits to crowdfunding.

How does crowdfunding work? Crowdfunding begins when an innovator posts a project or an idea online for the world to see. This state-of-the-art method has opened the door for entrepreneurs, not only reducing transaction costs of business, but broadening the potential audience. Once the idea or proposal is posted, millions of potential donors are able to contribute to the project if they so choose. Those who opt to donate are afforded the opportunity to provide valuable feedback and advice for the project, in order to make a more user-friendly and customized product.

Ultimately there are two options available for contributors: they can receive free or highly discounted products from the start-up company once it is developed, or they can eventually opt for equity in the company itself. Discounted or free products are called perks, and they are often items like t-shirts, hats, and other merchandise that the start-up company has made. Another option that will soon be available to contributors is the option of investment in the company itself.

According to the JOBS Act (Jumpstart Our Startups) that was signed into law in April of this year, individuals (even those who are non-accredited) will be able to invest in these start-up companies, so long as the intermediary crowdfunding sites (rockethub.com, kickstarter.com, etc.) are registered through the SEC and follow certain guidelines. This creates the potential for approximately ninety percent of the population, who have been previously excluded from investing due to income and net worth requirements, to invest in new and emerging growth businesses.

So what are the benefits of crowdfunding? For starters, this new concept allows for higher growth and improvement potential in the early stages of business development. Entrepreneurs who use this new tool now have the advantage of seeking funding from individuals, and not simply from institutions. This allows literally millions of new options, offering unlimited potential, even from investors that were never feasible before.

This new potential for funding, in turn, creates many new jobs and economic opportunities, alleviating the unemployment situation in the United States and other nations. Crowdfunding offers literally a world of possibilities, with its unbiased platform and new avenues for innovation, job growth, and overall economic activity.

For more information on Crowdfunding, and to see lists of the potential projects and products, visit rockethub.com, kickstarter.com, and indiegogo.com.

For a list of new SEC guidelines regarding Crowdfunding, visit the SEC website at: sec.gov/divisions/marketreg/tmjobsactcrowdfundingintermediariesfaq.htm.

“Business Tips” was written by Traci Jordan, a graduate assistant of Angelo State University’s Small Business Development Center. Contact her at ito@angelo.edu.

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    Traci Jordan, International Trade Office Graduate Assistant
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ASU Small Business Development Center
San Angelo, TX
Phone: (325) 942-2019
E-mail: sbdc@angelo.edu