Crowdfunding: a new opportunity for small business and entrepreneurship.

Author:Bradley, Don B., III
 
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INTRODUCTION

Combining the opportunity for entrepreneurs to make projects a reality, investors to turn someone's dream into a reality, or an average person donating to help better society, crowdfunding is not without its flaws. Crowdfunding is not a financing platform that is regulated; individuals have free reign to find funding through these online platforms for whatever they need funds for, to an extent. This situation puts banks in a predicament, since people are trying to fund their projects with hassle free rules; therefore, they are not seeking as many loans from the banks. Rules and regulations to alleviate potential perils are in the process of being put into place through an act signed into legislation as of 2012. In the coming pages, the paper will cover the history of crowdfunding and how it has become what it is today; the basics of crowdfunding and how it works; the larger platforms available to entrepreneurs wanting to have their projects crowdfunded; successful projects that have derived from crowdfunding; the implications of crowdfunding; rules and regulations and the future of crowdfunding.

THE ENTREPRENEUR

Over the past decades the growth of the entrepreneur has become very prominent within the business world. Small businesses owned by the average person are turning into the norm just like any franchised company or large corporation. The days of working a typical schedule of "9-5" are long gone. These entrepreneurs have pushed the corporate rules to the way side and became their own bosses. According to the text of Small Business Management: Launching and Growing Entrepreneurial Venture, an entrepreneur is defined as: a person who is relentlessly focused on an opportunity, in either a new or existing business, to create value while assuming both risk and reward for his or her effort (Longenecker, Petty, Palich & Hoy, 2012). Becoming an entrepreneur is as simple or as complex as you and the environment you are in allows it to be. The critical determinant is on what business opportunity that the entrepreneur decides to latch. As stated earlier, this can be a new or existing business to the entrepreneur's environment. Funding this business venture may be the most difficult stage in the process. Many investors are leery to fund a person or business about which they know little. Luckily for entrepreneurs, within the past two decades crowdfunding has found its way to the internet.

CROWDFUNDING 101

Crowdfunding is a newest evolutionary form of micro financing. The goal of crowdfunding is to help individuals get a financial start on the small business venture. Tanya Prive of Forbes defines crowdfunding as, "the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet" (Prive, 2012).

Historical Crowdfunding.

The roots of this micro financing can be traced back to the 1700s when it was once called an Irish Loan Fund. Founded by Jonathan Swift, these loans were given to low income families in rural areas. These loans gained in popularity and peaked in the 1800s where over 20% of all Irish households held an Irish Loan Fund. The idea of micro financing did not stop in Ireland. The popular idea found its way to Bangladesh, India in 1976 where Dr. Mohammed Yunus provided banking opportunities to low income families on the same concept of the Irish Loan. Within five years of it inception, Dr. Yunus' banking program grew to over 30,000 members from the original 42 females. In 1983, the original idea made a transformation from the small program into what is known today as Grameen Bank. According to Forbes, "Today (Grameen Bank) has more than 8 million borrowers, with 97% going to female operated businesses" (Farrell, 2012).

Modern Day Crowdfunding.

Though micro financing was noted as early as the 1700s, it was not until just a few decades ago that some historical points shaped crowdfunding into what it is today. The first account of crowdfunding can be credited to Marillion, a British rock band, in 1997. Marillion raised $60,000 online through donations from their fans to go on a reunion tour ("The history of,"). After seeing the success of Marillion and the opportunity that could be seized from this type of financing, Brian Camelio started ArtistShare in 2000. ArtistShare is the first crowdfunding platform that allows fans of artists to fund the creation of new works from the artists ("About,"). Since emergence of ArtistShare, many other platforms of crowdfunding slowly made their appearance online.

In 2009, nine years after the appearance of the first crowdfunding platform, things began to pick up for the crowdfunding community. Popularity grew for entrepreneurs, investors became more interested, and the business world saw dollar signs. Fundable, a crowdfunding platform, reported, "Crowdfunding revenue tripled from $530 million in 2009 to $1.5 billion in 2011 and is expected to continue rapid growth in the coming four years" ("The history of,"). To be more specific, the growth rate is 74% compounded annually ("The history of,").

This progression and success has caught the attention of many but none larger than the United States government. Gaining support from the government has opened new doors of opportunity for entrepreneurs and small businesses to be financially supported. In April 2012 President Barack Obama signed the Jumpstart Our Business Startups (JOBS), "the crowdfunding bill", into law ("The history of,"). The bill attempts to reduce the regulations on small businesses and...

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