Money of the Crowds: Crowdsourced Funding

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In light of a mini-controversy set off this morning when the founder of a web startup apparently violated SEC laws when he sent out a Twitter message looking for investors, The Globe and Mail’s Matthew Ingram wonders why can’t we raise money from the crowd for startups?

“Why couldn’t someone ‘crowd-source’ a financing for a startup?” he asks. “Why not allow blogs and social networks to play a part in the raising of money? It’s not as though millions of people haven’t been just as impoverished by ‘qualified’ investments and prospectuses as they could ever be by investing in a Twitter financing. Why do we need the government protecting us from ourselves?”

And he raises a good point. What’s more, crowd funding is already a fairly booming business — just not so much for the funding of startups.

  • A Swarm of Angels is in the process of raising £1 million to fund the creation of a feature film (and they’re not the first to try that).
  • SellABand has tapped the crowd to raise $50,000 each for 24 separate artists to record albums. So-called “believers” who invest $10 or more in fledgling bands own a piece of their investment and make money from advertising on the site and sales of the recorded tracks, and they have the right to open a shop on the site to sell merchandise related to the acts they’ve invested in.
  • Last November, a group of football fans at MyFootBallClub in the UK raised money from around 30,000 footie fans and purchased a majority stake (75%) in minor league team Ebbsfleet United for £600,000. Every fan who purchased a share of the team gets to vote on which players to purchase, which to trade, how much to charge for season tickets, and what the club’s weekly budget is, among other operational decisions. In August, the site’s members raised an additional £20,000 to buy striker Michael Gash from rival Cambridge City.

Could this model work for startups? Probably. According to Mashable, Jason Goldberg of SocialMedian — the founder who tweeted the controversial funding announcement — claims to have found 3 legitimate investors within 30 minutes of putting out his message on Twitter. And, the idea of crowdsourced micro-financing via social media seems to be something that other entrepreneurs are interested, judging by the discussion about Goldberg’s tweet unfolding on Twitter.

Josh CatoneJosh Catone
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Before joining Jilt, Josh Catone was the Executive Director of Editorial Projects at Mashable, the Lead Writer at ReadWriteWeb, Lead Blogger at SitePoint, and the Community Evangelist at DandyID. On the side, Josh enjoys managing his blog The Fluffington Post.

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