Technically speaking, crowdfunding is defined as the practice of funding a business venture by raising small amounts of money from a large number of investors. Business owners who’ve benefited from it, however, will give you a more colorful definition and define it as a means to make your dreams true.
Some might call the later definition a little over-the-top, but in all likelihood these would be the people who wouldn’t have ever approached a bank or an accredited investor with a business plan. They wouldn’t know how difficult it is to convince them to fund a venture unless you’ve great credentials.
Thanks to crowdfunding, you don’t need great credentials to raise capital. A great business plan and never-say-die attitude is sufficient. Crowdfunding gives you a chance to raise capital from non-accredited (read: small) investors. And therefore it indeed is a means to make your dream true.
Key Benefits of Crowdfunding for Startups
Some main benefits of crowdfunding for startups are:
- Can raise capital more easily – If you have a smart business idea, there are many popular online crowdfunding platforms with many small investors willing to invest in a smart startup.
- Provides validation faster for free – Crowdfunding platforms provide you with an excellent opportunity to validate your business idea and understand the size of your audience
- Get insight from experts (who can be your potential investors) – This is perhaps the best feature of crowdfunding. You can get feedback from experts and who knows, they might like your business so much as to become an investor in your venture.
Key Benefits of Crowdfunding for Small Investors
Some main benefits of crowdfunding for small investors are:
- Get a really smart return – If you invest in a smart business idea, you can get a great return, more than what any other financial scheme can provide.
- Be a part of something you believe in – If you like a cause, you can become a part of it by investing your money in it.
Some Facts about Equity Crowdfunding As It Is Today
With the US Congress passing the JOBS act in 2102, raising money through crowdfunding has become quite easy and simple for startups and small businesses. Earlier startups could approach only non-accredited investors or at the best could have up to only 30 non-accredited investors via equity crowdfunding.
Today, however, there are no such limits. Businesses can have as many non-accredited investors as they like. (Investors are of two types: accredited and non-accredited. People having a minimum net worth of $1million or with annual salary of last two being more than $200,000 are called accredited investors. Non-accredited investors, on the other hand, have less than $1 million in assets and whose annual salary of last two years is below $200,000.)
Regulation A+ of JOBS act ensures small businesses now can raise more capital than ever through crowdfunding. Earlier, businesses couldn’t raise more than $5 million via crowdfunding. However, today, the maximum limit is 50 million.
In other words, today, startups and small businesses can not only raise more capital through crowdfunding they can also approach small investors for funds. However, relaxation of regulations on crowdfunding has led to greater amount of paperwork that needs to be done when raising money from crowdfunding.
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