CrowdFunding is a relatively new phenomena dating back to 1997 when a group or young people created a site for PeerToPeer lending. Friends would use a site to provide small loans to friends; for travel, emergency medical expenses etc. Other sites were used to gather funds to pay for rock bands to tour or record albums without help from record companies.
Later, a few sites, again launched by young entrepreneurs, started CrowdFunding as an investment tool (selling equity in businesses or promising a certain return on investment).
Very quickly SEC shut down these sites because a law from 1933 prevented this type of activity.
Earlier this year, a site which is not a real CrowdFunding portal and maybe better defined as a pledgefunding site, called KickStarter.com raised $10 million in 2 months for a project which had to do with a wrist watch that could be used to synch and operate personal communication devices such as iPhone, iPads etc. This created worldwide buzz as you can imagine since the people who needed funds had a goal of only $200,000 in mind.
Fast forward to March 2011 when the Obama administration, due to lobbying efforts by various groups between 2008 and 2011, signed HR3606 (The Jobs Act) into law.
Starting January of next year, individuals and small companies can raise up to $1,000,000 in a 12 month period from the general public to start or expand a business.
Because CrowdFunding is so new no one without a crystal ball knows how exactly it will be used or how successful it will be. Already crowdfunding platforms are waiting at the gate to cater to various demographies such as teens, geeks, people with rare medical conditions, people with fetishes etc.
Here are a few examples of how I think CrowdFunding can help Americans, specifically Iranian-Americans:
1) Restaurant owners
Suppose you own 1-2 popular restaurants in your town/City. You want to set up a 3rd and a 4th but despite good cash flow you don’t have the means to do so. You know that if you can operate 6 or more popular money making restaurants chances of creating a franchise would be real high. Well, here is your opportunity. You can raise $2,000,000 in 2 years by offering equity in your operation or promise a certain return on investment to people who can invest $2,000-100,000 in your business each year. Investors could be your loyal customers who know you, like your food and want to see more of your restaurants all around.
2) College students
Traditionally, college students become employees of large and small companies after graduation because being young they don’t have a lot of savings or whatever their parents saved for them was probably used for tuition, room and board. CrowdFunding enables college grads to start companies to work on numerous products and service ideas many of which us older folks cannot even imagine. Smart college aged kids or grads can start off being their own bosses
Old companies such as Apple, Microsoft and Dell and newer ones such as google, youtube, groupon, facebook and a few dozen more were all started by college aged kids who had come up with business ideas while in school. These ideas were made into products in garages and dorm rooms and the rest is history. For every Bill Gates, Steve Jobs or Mark Zukerberg there were probably 100 more intelligent people who had brilliant ideas but did not have all the business acumen of the famous people we know. With easier access to capital many more companies and products would have been made possible.
3) Dental School grads
These days, most dentists whether general practitioners or specialists graduate with a mountain of student loan debt. In addition to this debt, they would need at least $500,000 to start a practice. A dentist can do CrowdFunding and offer life time free or discounted dental services to the people who help him get started.
I think you get the idea. The list is essentially limitless, specially if one thinks outside the proverbial box.
Much caution and due deligence should be taken by individuals who want to invest in new ideas and companies. Like any other industry, there will be bad apples amongst people who raise funds.
Therefore, invest your money wisely and if its too good to be true, it isn’t.