A new way to raise capital: using crowdfunding to attract donors and investors to jump-start your business.

Author:McCoy, Frank
Position::SMALL BUSINESS
 
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IT WAS A RECORD-BREAKER FOR MINDBLOWN LABS WHEN THE TECH startup secured more than $77,500 on the crowd fundraising platform Kickstarter.com last fall to develop the financial literacy game Mindblown Life. That amount contributed to Mindblown Life was more than any other pledge to a mobile-only game in Kickstarter history. Mindblown Life is the most successful educational mobile game campaign on Kickstarter as well. Some 695 people contributed to the 31-day campaign,

Jason Young, who co-founded Oakland, California-based Mindblown Labs with Tracy Moore II, chose Kickstarter because of the platform's affinity for analog and digital game developers. Young believes mobile social games can teach anyone, anywhere, anytime. The success of Mindblown Labs' campaign proves that the greater community can help drive true innovation by providing funds to entrepreneurs at their earliest stages in business. Crowdfunding, raising money via various Web platforms from friends, family, and strangers, is becoming popular. In 2012, Massolution, a research company, projected that crowdfunding sites would raise about $2.8 billion and are likely to become a prevalent way to access capital.

But there are some caveats. While backers can give a new business massive support--and seed money--they can also tear down that business if it fails to deliver regular updates on a product or the product itself. Backers may even ask for their money back. Although crowdfunding has received support from lawmakers and business advocates, it also has its critics who believe investors and donors could become victims of fraud.

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A NEW TREND

Worldwide, peer-based lending sites such as SoMoLend.com, reward-based ones such as Kickstarter.com, and investor-based sites such as CircleUp.com are proliferating. But raising money from collective groups of people is not a new concept. Former slaves pooled money to fund businesses and educational organizations. In fact, a type of microlending has been practiced for centuries all over the world, as seen with "sou sous" in Ghana, "chit funds" in India, "tandas" in Mexico, and "pansanaku" in Bolivia.

William Michael Cunningham, CEO of Creative Investment Research Inc. in Washington, D.C., recognizes modern-day formalized crowdfunding as a tool for black economic development. Cunningham, the author of The JOBS Act: Crowdfunding for Small Businesses and Startups (Apress; $19.99), likes crowdfunding because...

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