What Is Crowdfunding?

Crowdfunding: An evolution in funding and disruption to the VC model

• Crowdfunding provides emerging companies with a new source of finance in a period of acute VC slowdown. The most recent PwC MoneyTree analysis of venture capital investment for all sectors in the US indicated that only “$6.9 billion was invested in companies during the first half of 2009 indicating a return to the lowest VC investment levels since 1996-97”. 

• Mobilizing the power of the crowd through Crowdfunding to raise finance may prove genius marketing for new emerging technology providers or large firms that possess an engaged network of customers or fans (e.g., Apple).

• Benefits include involving a community right up front in the design and then management of a new product or company, not giving up direct investment control to a single or tightly knit group of investors and transferring risk of development to a community. Organizations will have more access to committed resources, talent and ideas.

• However, it is an unproven model and significant regulatory obstacles exist, particularly, in the US. The immaturity of the model, substantial legal obstacles, and a lack of best practices including governance disciplines need to be addressed.

Download Crowdfunding Central's free strategy guide to help understand what Crowdfunding is and the key issues behind this potentially game changing funding technique.