Cake Notice, a small food store in South California raised capital through a crowd funding site Small Knot , to start its retail operations and they received more than what they expected. The request was for $2500 and they got $2620! This is not a single case, Ouya a game console got much more than what they expected, they got $8.6 million. In 2008, for the US presidential election campaign the fund raised by Mr Obama was mainly through these crowd funding platforms.
The crowd funding may be a relatively new phenomenon, but it is growing like wildfire later it got immense reception in the US and UK. In the earlier model, people used to pledge their money for startups that too, with no expectation in return. The contribution model has been reverted to Donation model, Lending model and Investment model these days and will be surely subjected to further changes in the future.
In the Lending model, there are terms and conditions where the creators have to follow strictly as in typical lending. The expectation of repayment is present in this model. The Lending model can take the form of a traditional lending agreement and a simple loan.
The Donation model is purely donating money by individuals and they hold no expectation of returns. The contributors are thanked by rewards and small incentives.
In Investment model it is just like a standard equity investment, where the investor gets equity or share of the project. This could be a security investment model or revenue sharing model.
Raising capital was once purely traditional, but with the launch of more and more crowd funding sites it became easier for millions who wanted to shape up their business and there are successful startups who even used social media platforms to raise their capital. In India a film maker raised 51 lakh just through FB.
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