2013 was earmarked as the Year of The Entrepreneur. Back in April 2012, President Obama signed off on the JOBS Act, paving the way for investment crowd funding to see in the New Year, bringing with it an estimated $300bil in funding for new and small business, all without any impost on government. Much of the world, with their laws pretty much prohibiting investment crowd funding, was taking their place on the sidelines, ready to watch it all unfold, with plans to base their changes on what emerged. But with the SEC more focused on the Fiscal Cliff, the introduction of Investment Crowd Funding stalled, leaving many to question “what now for small business and start-ups?”
Further confusion was created in some parts of the world as regulators, keen to reign in the activities of over-anxious project creators and platform operators, announced that until investment crowd funding came into local law, crowd funding could not be used by small business or start-ups in their part of the world to raise capital required for commercialisation or growth of their business.
Whilst it is true that in many parts of the world, crowd funding cannot be used to offer investment, equity, financial return, or securities as rewards to those who pledge their support, small business and start-ups can very successfully and very legitimately use crowd funding to raise the funding they require. And with the stalling of investment crowd funding in the USA, it is more poignant than ever that the pledge model of crowd funding can be and is being used to raise capital quickly and relatively easily.
Astute business owners and entrepreneurs have realised that the pledge model of crowd funding offers them an avenue of raising funds that does not involve taking on loans that need to be repaid, or the surrender of equity in their company or idea. Crowd funding, in its current format, allows for owners of small business and start-ups to engage the crowd, to share their passion, and to build a following. It is not merely a case of making pre-sales to customers who seek a bargain. It is about building a following, and a loyal band of “fans” that are not just there for a fleeting moment, but now become part of the company, its success and its growth.
Without offering equity, businesses are able to offer cool rewards to those who pledge, often making these rewards available for pledges far less than the face value of the inducement on offer. But it is also about telling a story about the team, the product or service they hope to deliver, and the objective they hope to achieve (the reason why they need the funding). If there is a greater good or a problem that will be solved for the community by the project being achieved, then that adds more weight to the campaign.
So while many stand with crossed arms, tapping their foot, and impatiently awaiting the next move of the SEC with regards to investment crowd funding, others are getting on with the business of doing business – all funded by crowd funding used in a the manner that is currently permissible by law. And as long as entrepreneurs and start-ups stay away from offering equity or financial returns to those who pledge their support, crowd funding as it currently stands offers a great way to fund enterprise and initiative.