Why Start-Ups Need Crowd Funding

Author: Tom Szaky

Source: The New York Times, December 5, 2011

Having personally raised money multiple times, I think crowd funding is a great option for businesses to use to find funds.  There are, of course, hidden pitfalls, so you need to understand the pros and cons of using this method, but I am a staunch supporter of getting the legislature passed so that small businesses have yet another opportunity to raise money, thereby (slightly) leveling the playing field with corporate America.

…At its core, crowd-funding is a way for people anywhere (“the crowd”) to use the Internet to find and finance endeavors they believe in. It has been used, variously, to raise seed financing for socially responsible start-ups (Launcht), to supply microcredit in the developing world (Kiva), to collect donations (Karma411), to collect campaign contributions (the 2008 Obama campaign) and to collect money for artists from patrons (Kickstarter). These are just a few examples in a growing industry that helps nonprofit organizations and other causes tap the good will of their communities. But the opportunities could be even greater. Thus far, crowd-funding sites have only been able to accept donations, because securities laws prevent them from accepting investment capital. But that could change.

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