What’s trending now?
In an age where people are looking for a lifestyle more than a career; where entrepreneurial talent is lauded from the rooftops; and collective ownership is slowly gaining speed, the time has come to change the way the world looks at start-up business funding.
Crowd funding has emerged as the obvious response to all three calls. Entrepreneurs are now able to open their fledgling enterprises to investment from the community at large without listing it on a stock exchange. In some cases, business do not even offer any return to their investors, simply taking donations for… whatever the money is for.
Why it’s important
From a business perspective, crowd funding is often used to generate enough cash to launch a new endeavour or to scale product distribution. When offered as an investment, investors can expect some return though the details remain largely private between the parties involved. The obvious benefit is that entrepreneurs and microenterprises can compete – at some level – with the bigger guns that already have a market share.
However, crowd funding is not limited to the development of business. Local musicians in the States have taken over the idea, using it to garner support from their fans so they can release an album or fund a tour.
And people do give. Whether it is an investment or just a donation, individuals are standing behind the causes and businesses they believe in. Although angel donors are more likely to support social impact projects than local music, there are reports of people in need receiving the money they need to pay their bond with no strings attached.
But, where crowd funding is truly creating a stir is the investment sphere. Crowd funding operates outside of banks and traditional investment funds; and sometimes the returns put these products to shame. Governments have had no choice but to take notice in countries like the US, UK, France and even New Zealand.
What’s the butterfly effect?
In the short term, it is a matter of people getting what they need through the assistance of others. Longer term prospects for the crowd funding trend, however, could turn this world on its head. The idea itself moves socialism towards the right edge of the political-economic spectrum. Crowd funding allows those without the means of ownership to behave as if they do have it and this alone allows for brilliance to shine through, provided marketing matches the ideas themselves.
But, as government consideration from the UK suggests, crowd funding has the power to transform the banking and investment sectors worldwide. Not only does a currently unregulated sector put investors in a position to profit (and investment firms are certainly working to offer their clients crowd funding portfolios), it also means that banks may lose out on small business loans going forward.
Bypassing banks means that already low savings returns with these institutions may decline even further. Unfortunately, this may have negative consequences for the poorest populations who will battle rising service charges.
There are plenty of websites aimed at angel investors and community projects, such as Crowdfunder and Kickstarter. But, there are specialist sites as well, such as Prodigy Finance. This South African crowd funding start-up loans money to MBA students. With impressive returns for investors, and a zero default rate from funded students, this company clearly demonstrates the best aspects of crowd funding and what it can achieve.
The Global Hotspots
Crowd funding has undoubtedly taken hold in the United States, where individuals, as well as companies, are increasingly aware of the platforms available. However, the trend is spreading worldwide, mashing together with social impact investing, and increasing the number of people impacted by this trend.
By: Katie Schenk
Katie is South African by choice, but she’s proud of being American too. She’s a writer, a producer, and a momma. If she can shut off – she sleeps. Her interests include advertising, home economics, entrepreneurial processes, South African idiosyncrasies, and rugby. (Really). She’s also a fan of Tudor history – but there’s nothing trendy (or trending) in that.