Crowd funding is a collective effort of different people who join hands to combine their resources in order to support steps taken by other individuals or organizations; this is usually done via the internet. There is no restriction for supporting any activity by crowd funding. Different activities like startup companies, support of artists by fans, political campaigns, movies, disaster relief, free software development and citizen journalism are usually supported by crowd funding. Selling small amount of equity to different investors for funding a company is also a form of crowd funding. In April 05, 2012 President Obama signed an Act into a law that allows a wide range of investors to make investments with much lesser restrictions. The US policymakers made this move because crowd funding seems to be one of the good solutions to the problem of on-going recession. However, the specific rules and guidelines for ensuring the protection of investors are to be set forth yet.
A bank called MicroVentures has already taken a bold step. It is an investment bank for the startups. It was founded in 2009, and it is a market place that has built a platform that gives startups and existing small businesses to early-stage capital investment or micro investments. This Texas originated organization also provides an exclusive opportunity for investors to offer funding resources to entrepreneurs and early stage organizations that need capital to accelerate company development. This bank helps startups to raise capital from angel investors after conducting and approving due diligence on them. The process of this bank to raise capitals is the same as crowd funding. It gives angel investors the ability to invest small amount of capital to crowd fund a start up raising a bigger capital. The concept is quite similar to peer to peer lending; however, one gets equity for his investment instead of the debt.
MicroVentures has already funded millions of dollars to many organizations like Facebook, Yelp, Techstar’s, Shopobot etc. Suprisingly, most of the projects worked in this economy and it seems crowd funding is the investment of the future.