What Does Crowd Funding Mean?

I really want everyone who reads DigiDame to understand what Crowd Funding means. You probably heard this term casually mentioned over the last few months while at cocktail parties or in stories you have read in the press. You didn’t pay much attention to it because it sounded so complicated and esoteric.

Crowd Funding is really easy to understand and makes a lot of sense. It is very trendy in the digital community. You will absolutely impress everyone (especially the digital babies) when you reference “Crowd Funding” in a conversation. All of a sudden people will start looking at you as if you are some kind of rock star.

That is exactly what DigiDame aims to do. If I can understand something, then you can too. I like to dumb things down as much as possible when trying to understand a new concept so I can truly appreciate what it means and how I can use it in my life.

Crowd Funding is what a lot of young people do to raise funds for their innovations, developments, ideas, concepts, or inventions. It means that funds are being solicited from the masses for a project, rather than going to a few major investors. It really started in the entertainment business when fans contributed funds to rock groups and movie projects over the Internet. Then it expanded to political campaigns—a la Obama. Nowadays, people soliciting funds use websites that have been developed just for this purpose. The most popular site in this space is called “Kickstarter” because they have been able to collect millions of dollars for new projects in a matter of days.

Wikipedia points out that “ArtistShare” is documented as being the first Crowd Funding website for music (2000/2001) followed later by sites such as Sellaband (2006), Indiegogo (2008), Pledge Music (2009), Kickstarter (2009), RocketHub (2009), GoFundMe (2010), and Rock the Post (2011). Kickstarter just captured headlines again this week with the successful funding of the Ouya Gaming platform, raising $2.5 million in one day.

It is also important to know that many of the Crowd Funding websites give contributors the product at a substantially reduced cost if they contribute a certain amount of money. This discount can be as much as half the product’s selling price. This is a huge draw to help collect funds and to build orders. It is a marvelous strategy to start out with hundreds, thousands or even millions of products pre-sold. It is a win-win for everyone involved.

The reason why most people raise funds this way is because they have been rejected by venture capitalists and angel investors who require a lot of paper work and justification. Most “new idea” people are unable to raise money for their projects because there are more of them than the folks who dole out the dough. Crowd Funding is becoming extremely popular because there are millions of people in the United States who love contributing a dollar or two to support “startups,” “political campaigns,” “a new movie,” “a medical experiment,” and/or any kind of new development. It is very ‘hip” to say, “Oh, yes I invested before anyone really knew about it.” The truth is they only sent in a dollar or two just so they can feel like an insider. Crowd Funding is considered a “cool” thing to do, especially for “green causes.”

Crowd Funding also became popular because of the United States of America JOBS Act that was signed into law by President Obama on April 5, 2012. The Act allows the funding of a company by selling small amounts of equity to many investors. Not all crowd funding translates into equity. A lot of Crowd Funding is just a social transaction.

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