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The Financial Power of The Crowd

Part I

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Stephen TharrettStephen Tharrett

The Democratization and Socialization of Raising Capital

Raising capital has never been an easy task for entrepreneurs, and for most entrepreneurs, launching a business raising capital can be the "straw" that often breaks the camel's back, the challenge most likely to derail their business vision. Until recently, raising equity for a business venture, be it start-up capital or growth capital, was comparable to a soldier navigating a minefield without a mine detector.

At the height of the recession, a confluence of variables (i.e., stricter lending practices by banks, movement of venture capital away from start-ups, private equity firms retrenching and refocusing on proven business models, shifts in consumer purchasing behavior, shrinking personal savings accounts, impact of the cloud and social media and a new generation of young entrepreneurs) came to bear what would forever change the landscape for how entrepreneurs sought capital to bring their business vision to reality. This innovative new world of financing called crowdfunding has opened doors for entrepreneurs who only a decade ago would have had no chance of raising the capital needed to start or grow their business.

Mark WilliamsonMark Williamson

Crowdfunding is rooted in the convergence of social connectivity, investing democratization (i.e. anyone can invest), cloud-based technology and government regulation. In 2012, the passage of the JOBS Act (Jumpstart Our Business Start-Ups) added an exponentially more powerful environment for the introduction of additional approaches for crowdfunding, opening the doors for both accredited and non-accredited investors to invest in the dreams and business solutions of entrepreneurs. Clifford Holekap, Senior Lecturer of Entrepreneurship at Washington University offers a very succinct description of the appeal and popularity of crowdfunding in today's new economy. He said, "The real reward of crowdfunding investors is not financial; it's the opportunity to participate. Helping an entrepreneur achieve their dreams and being part of a company that changes its industry, and even the world, is exciting and personally rewarding. Everyone should have the freedom to make a difference with their dollars."

According to recent statistics, $16.2 billion was raised in 2014 using crowdfunding platforms. In 2015, experts estimate crowdfunding platforms will generate over $34 billion in capital. According to a recent article that appeared in Entrepreneur online, approximately 41% of all funds raised through crowdfunding platforms are used to launch a small business.

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