Can’t find one person to give you $10,000? What about 200 people to give you $50?

Think about your social networks. Do you have a Facebook account? Are you on Twitter? What about other networking sites, such as LinkedIn?

Now let me throw a few other networking sites at your attention:

Have you ever heard of Kickstarter.com? IndieGoGo.com? GrowVC.com?

If not, and if you’re looking to fund your small project in a big way, these are the Web sites you need to be adding to your Bookmarks.

It’s called crowd funding. It mixes the power of social networking with good old fashioned philanthropy. You create a project — funding your start up, for instance — and post it to cyberspace. The benefits are twofold: not only do you appeal to small-time investors en masse, but you also acquire free market research. If your idea doesn’t take — nobody invests in it — you get a pretty reliable hint that you should rethink your idea.

But if the idea does take, you could be the benefactor of big gains. Unlike traditional capital investments, where aspiring entrepreneurs appeal to investors with the promise of ROI beyond market expectations, crowd funding does not require any reimbursement. In fact, by its nature, it can’t.

In order to keep the transaction “pure,” recipients of crowd funding often reimburse investors with very nice thank-you cards, presale products not yet on the market, credits in their independent movies or scripts, etc. Money can be received, but not returned. Otherwise, entrepreneurs and well-intentioned investors alike risk violating the Howey Test, which clearly defines a transaction as an investment contract (i.e.: security) as a situation “whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter of third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”

Moral of the story: while crowd funding offers a new avenue of accessibility regarding funding, make sure you are playing by the SEC’s rule book.

If you have a great idea that you think your peer group would support, go for it. Crowd funding has changed the game for many small business people. Just don’t kid yourself: the goals of this game are not long term.

In addition to opening yourself and your idea to better funded competition (the only way to be the benefactor of crowd funding is to, well, open yourself to the crowd), it’s also often a one-time deal. Invest your earnings wisely, because if you have to go to the races a second time, you’re not likely to get much in the way of investments. It’s called start-up funding for a reason: after you’ve started, your original benefactors will be on to “the next big thing.”

But that’s not intended to be a note of discouragement. Imagine what you would do if a group of online investors — friends, friends of friends and complete strangers — got you up and running with that $10,000 you’ve been fantasizing about in your dreams. Surely you have enough savvy to invest in a more long-term marketing strategy, right? Well, then, what are you waiting for?

 

Looking forward to your success story,

Megan Tackett

Go back to The Write People.

Have an issue that you want addressed? Leave me a comment with your suggestion, and I’ll tackle it on my blog entry!

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