What Is Crowdfunding?

What Is Crowdfunding?

crowdfundingCrowdfunding is a method for large groups of people to give small amounts of money for a particular purpose-for a project, for a start-up, for company growth, for a cause, etc. Equity (and debt) crowdfunding is the sale of equity or a debt instrument by an issuer (i.e. company) and investors. The crowdfunding distinction is that these sales generally are advertised on social media or otherwise, sold via a website, are open to members of the general public but have certain restrictions as regards the amount an individual may invest and the total offering size. Crowdfunding allows ordinary investors to share in both the risks and rewards of start-up ventures.

From the entrepreneur’s perspective, crowdfunding is new potential funding source for the equity (or debt) that you need to start or grow your business. What is unique is crowdfunding gives you the ability to raise funds from the large network that knows you best–your customers or prospective customers, suppliers, friends, etc. An additional benefit is that crowdfunding allows you not only to raise money, but it may also be used to test the demand for your product. Furthermore, it creates a group of co-owners that should have the incentive to buy and promote your product. Crowdfunding is not necessarily inexpensive. You need an attorney to draft your offerings and disclosure documents plus ensure that you are conforming to federal and state legal requirements. There are fees associated with MoolaPitch.com portal use as well. After you close on the investment there are other costs. Your investors at minimum will expect to receive on-going communications regarding your business performance and prospects. Furthermore, there are on-going reporting requirements to investors under Wisconsin law.

From an investor perspective, crowdfunding can be fun. Crowdfunding allows one to place a vote of confidence in a Wisconsin business through becoming a part owner in a business. A crowdfunding investment may allow a new business to provide vital goods and services to a community or ensure that a business survives, grows and provides continued and new employment opportunities in a community. The hope, of course, is that the investment generates a good financial return, but an investor needs to recognize that these investments are risky. The survival rate of new businesses is low. Some say that 3 out of 4 start-ups fail. Five-year survival rates for new businesses are generally around 50%. This said, some of that failure may be due to the lack of financial resources or the inability to tap enough consumers. Crowdfunding can address both of those problems; nevertheless no one should invest more than they can afford to lose.

Whether you are an entrepreneur or an investor, MoolaPitch.com offers a new capital raising/investment avenue for the people of Wisconsin to work with each other in growing the state together.