photo credit: wili_hybrid

Crowd Funding can be described as a trend that aggregates small amounts of money from many people for a certain cause which can range from helping a charity to funding a clothing design. The networking and pooling for funding is usually done through the internet.

Companies have been tapping funds for customer service and product design for quite some time now but tapping the crowd for funds is a bit trickier. However, there is great potential for startup financing through crowdfunding.

An entrepreneur who wants to use crowd funding makes use of online communities to solicit pledges of small amounts of money from individuals (typically not professional financiers).

The biggest problem with crowd funding is that if a small contribution obtained via crowd sourcing is actually an ‘equity investment’ (or even a loan) then crowd funding companies may soon run faulty of security laws. For example: If you raise money from over a certain number of people, you are subject to a full-fledged list of security laws. (Rules vary according to country). Also crowd funding scams can be huge but where money is involved, scammers will come automatically.

So is crowd funding a Web 2.0 twist or the future of online fundraising?

I believe that crowd funding is here to stay and has enormous potential. It is still in its initial phase but it’s going to get better.

On this note I remember an online platform for crowd funding for web and mobile startups was launched recently - GrowVc

For more information we suggest you read this post and an article in businessweek