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Quick Guide: Crowdfunding

Crowd funding is a great way for a new business to get the starting capital it needs to get off the ground. Unfortunately, crowd funding is so new that many people don’t understand how it works or what its advantages are.

Simply put, crowd funding is a way to get a small amount of starting capital from a lot of different investors. When added together, these small amounts of capital can come together to form a large enough pool of money to allow a business to get started or expand.

Rather than hunt for a small handful of investors who will put up large sums of cash, business owners can write a business proposal that gets posted on the internet. There are several different sites that specialize in crowd funding. These sites allow potential investors to read through the various business proposals, then contribute money towards the project described.

Depending on the website, investors might simply make a one-time donation to a project, or they might make an investment that they expect to receive a return from. If the latter is the case, the business owner will be expected to post status updates on the business, as well as reports on profits.

Because these websites reach such a large group of people, it is possible to quickly fund a business even if the owner has been unable to secure traditional financing. In many cases, potential business owners are able to entice people to donate by sharing their vision of the business and how they believe it will benefit their community. Creating jobs, providing a needed service, and/or offering a new product are all great ways to encourage people to donate to or invest in a business.

In many cases, potential business owners will offer free products or discounts to donors in order to get to a pre-set goal. This allows the business to not only get the starting capital they need, but also generate excitement about the new business.

Crowd funding can be a great way to get a business started or give an existing business the fusion of capital that it needs to expand.