What is Crowdfunding? How does it relate to Social Media? How is it creating New Business Models and More Rapid Job Creation?

Below is an excerpt from Invest Crowdfund Canada's National Webinar, held 29 June 2012. 
Guest author: Andrew Weir

Broadly speaking, crowdfunding is about using the Internet to ask regular people to help fund you project or idea. There are a number of different models for this. The most globally prevalent model right now is donation-based.  For a benefactor in a donation-based system, it is about being willing to pay in advance for a product or project that you believe in. In most cases, donators will receive the product in exchange for contributing.

You asked how cowdfunding relates to social media. The most notable platforms in North America right now are IndieGoGo and Kickstarter.  They’re social in the sense that users log in, browse, discuss and ask questions before decided to donate or not. People looking for funding often include videos explaining their project. On some platforms (though not necessarily all), a project must have reached its funding target before any money is released. If the target is not met, no money is transferred.

What we’re talking about today is the next generation of crowdfunding: Crowdfund investing. Recently made legal in the united states and already available in other geographies, it takes the crowdfunding model a step further by allowing people to invest in companies and ideas in exchange for equity.

What this is about then is opening up new ventures and ideas to the capital and wisdom of the crowds. It is social in the sense that business plans and project ideas need to be able to stand up to the scrutiny of the social network. If one potential investor questions the logic or sustainability of the plan, the person or group seeking investment is going to have to adequately defend themselves to the entire crowd or fail. And its important to remember that the crowd is diverse – the scrutiny will come from people of all different expertise and interests. 

You asked about job creation.  New ventures are a crucial source for new job creation.  In the US for instance, of the modest increase of 119,000 jobsin April, only 4,000 of those came from big firms. Half of those new jobs came from small businesses and startups. We have established that it is anything by easy right now in Canada to obtain funding through banks or VCs. Opening up crowdfund investing provides these new and innovative companies with the funding they need to grow. 


Click here for our Whitepaper on Crowdfunding in Canada


For more information and to access our petition, visit the i-Canada page.