Social media as a new funding source?

crowdfundingThose of you who have followed this blog for a while know that its focus is always on financial topics relevant to college students, especially those I believe can help students improve their personal financial situation. Quite often though, students ask for my help in identifying the best funding options for their new business ventures, ideas and creative projects. In fact, one of my seminars focuses on how to present to potential investors, what they are looking for, and how deals are typically structured.

As with virtually every aspect of society, over the past several years social media has provided some new options for financing and funding of various kinds. It began with Muhammed Yunus, a Bangladeshi banker and father of the concept of microlending. Winner of the Nobel Peace Prize, Yunus championed the concept of microloans to entrepreneurs, predominantly in third-world countries. Numerous others followed, with one of the more well-known being KIVA, an organization I am proud to support today.

In microlending, website intermediaries, and in the case of KIVA, non-governmental organizations (NGO’s) within countries allow funds to move from willing lenders to borrowers and also facilitate repayment. KIVA, for example, has an average loan amount of about $400 and boasts a repayment rate of 99+%, a statistic sure to make traditional bankers salivate.

But of course, most student business plans and projects are creative ventures beyond the scope of a microloan. Enter the world of crowdfunding. Crowdfunding can best be envisioned as a form of social media voting or support, but in this case the support is financial and comes in the form of actual pledges. It is not a loan to be repaid, but neither is it an investment in exchange for an ownership interest, which is currently against the law (but something that may change in the years ahead with proper oversight and regulation). More on that at a later date.

Popular crowdfunding sites include Kickstarter, Indiegogo, Rockethub and others. Each is a bit different in terms of presentation and approach, but in each case the individual sending in their money does so in exchange for something in return. For a band trying to produce an album, it could be a signed CD, poster of t-shirt; for a consumer products company or manufacturer, it could simply be the first products off the assembly line. But in each case there is no monetary repayment or ownership interest.

So take some time to check out some of the key players noted above to see if crowdfunding might make sense for you and your entrepreneurial project.

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