Crowdfunding: The New Capital Raiser

Applying for a loan can be a daunting and unrewarding task, but modern technology is providing an alternative.
Crowdfunding allows those seeking money to post details of their project online and, hopefully, donations come flowing in.
Film producer Kirsty Stark used crowdfunding to raise over $25,000 to make three short films about a panda living in a post-apocalyptic wasteland.
“Without crowdfunding we’d have to rely on government film grants, arts grants, or we’d have to try to make the money out of our own pockets,” she said.
“It’s really difficult to get investment without going out to such a broad range of people.”
Crowdfunding is a fast-growing new phenomenon made possible by the internet.
On a crowdfunding website, those seeking money post a description of their project, and a fundraising target.
Sponsors donate small amounts to help the project take flight.
If the project fails to reach its target, the pledge amounts are cancelled.
“This is a new layer of the capital markets,” futurist Ross Dawson said.
“Many people are being energised by the new possibilities and we are seeing a very rapid growth in both crowdfunding sites and crowdfunding projects.”
‘Innovative idea’
In the US, the leading crowdfunding site, Kickstarter, raised $145 million last year.
In Australia, ING Direct’s David Breen says the company is partnering a crowdfunding website as a sponsor of community projects.
“We see it as an innovative idea,” he said.
“It’s a new idea on leveraging funding for community groups for projects that may not normally see the light of day.”

Crowdfunding is being harnessed mostly by artists, filmmakers and software developers on a donation basis only, but overseas some offers are now being promoted to contributors as investments with the promise of income from ongoing participation in the venture.

Mr Dawson says it is changing the role traditional financial institutions play in funding businesses.

“The rise of crowdfunding is creating new opportunities for funding for businesses and has the promise of changing the financing landscape,” he said,

“Banks and other financial institutions need to be watching this space closely.”

But Steven Munchenberg from the Australian Bankers Association says crowdfunding is not a threat to traditional bank lending models.

“Banks in Australia, for example, do trillions of dollars worth of lending,” he said.

“I think it’s very unlikely that even a significant proportion of that will be replaced by crowdfunding.”

The corporate regulator ASIC acknowledges crowdfunding is booming, but it also warns that there is a high potential for fraud on crowdfunding websites.

Source: Yahoo 7News – Simon Palan, ABC

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