If you are like many people, you have never heard of the concept of crowdfunding? Or you have heard it mentioned, but aren’t exactly sure what it means. Well I want to change that because I think it is the future of investing. Crowdfunding is the practice of individuals coming together to support and fund projects by other individuals and organizations. Crowdfunding was developed from the idea of micofinancing, which is the practice of giving small loans to low-income individuals that don’t have access to typical bank loans. These small loans give low-income individuals the opportunity to do something that lifts them out of poverty. I will discuss microfinancing in a future post.
Kickstarter is an online crowdfunding platform for individuals to post projects which need funding. These individuals describe their project and set a financial goal. Then individuals, like you and me, review the various projects and can choose which project(s) we want to help fund. These are donations to these projects, but the projects are required to give a reward to you if they become fully funded. These rewards can range from a CD of the project to an invite to visit the set.
Check out this video of a few projects from Kickstarter:
At this time, crowdfunding can not provide a return on your investment because it is illegal in the United States. The Securities and Exchange Commission would require the owners of each project to register as a broker, which is not feasible due to the compliance requirements. On March 8, 2012, the House of Representatives passed a billed to make crowdfund investing legal. The bill still has to go to the Senate and the President for approval, but it is projected pass by summer 2012. This could be a significant boost to our struggling economy by giving start-ups access to other avenues of capital. Crowdfund investing is already legal in Europe and has been successful.
There are other crowdfunding sites such as Solar Mosaic , which provides the opportunity for individuals to help fund solar projects. The money is paid back, interest free, from lease payments paid by the owner of the building that the solar is installed on. Microgiving is another crowdfunding platform this is much like Kickstarter.
Crowdfunding can be a great thing and could be a great alternative investment vehicle for those looking to diversify their portfolio. I hope this blog helped you understand crowdfunding and its benefits because I truly feel that it could become the future of investing.