Many people have heard this phrase before but are still unsure of what it actually means. To answer the basic question “what is crowd funding,” this phrase refers to a collection of people who pool their finances to support a person or organization. Now that you know the answer to “what is crowd funding,” you may be wondering why people would do this. Often, people engage in crowd funding to support a large effort, such as disaster relief or a political campaign.
Turning an Idea Into Action
Crowd funding begins when an idea is presented to a group of people. Those who support this idea will donate money to help make the dream a reality. The idea can be anything from a new business venture to someone who wants to run for political office. The idea may also be to start a disaster relief fund, like one that raises money to help victims of Hurricane Sandy.
The American JOBS Act will allow for crowd funding of companies for equity.
The JOBS Act: An Example of Crowd Funding
The JOBS Act was passed in April of 2011. JOBS stands for “Jumpstart Our Business Startups.” This acts helps give capital to new businesses and investment funds. In turn, new jobs are created in the United States. On top of providing funding for new businesses, the JOBS Act also gives startups more time to meet certain requirements, which means that these businesses have a better chance of survival.
Crowd Funding Websites
Certain websites are set up solely to help collect crowd funding. Often, these websites have a stipulation that the funds will only be released once a certain amount has been reached. For example, a startup will be able to collect donated money if it amounts to a minimum of $5,000. Otherwise, the funds are not released and the donors keep their money.
Paying Back the Funds
It’s not always necessary for the person collecting the money to pay it back over time. Depending on what the money is collected for, the funds may or may not be returned eventually. For example, if money is collected for charity, odds are it won’t be given back in the future. On the other hand, some new startups promise each person who donates money repayment or a cut of the profits. Either way, the guidelines should always be laid out ahead of time so that those who donate know what to expect.
Posted From; http://www.finraiser.com/what-is-crowd-funding/