Crowdfunding is a strategy for raising capital that has quickly gained popularity for startups and investors. Rather than trying to attract a few wealthy venture capitalists, startups attract many investors that contribute small amounts of money to fund the startup. The recent Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act, was passed by President Obama on April 5, 2012; it loosened restrictions for startups to raise capital and created new provisions to protect investors investing in startups.

More capital than ever is gravitating toward crowdfunding sites. According to research compiled by in 2011, roughly $1.4 million were raised through crowdfunding platforms (CFDs) and that number is expected to almost double in 2012. As a result of the massive increase of money flooding in, the number of CFDs is also expected to spike about 60% in 2012 to approximately 530 platforms. Let's take a look at look some of the current top crowdfunding platforms.

SEE: Seek An Adventure In Venture Capital

Founded in 2009, Kickstarter, as of June 2012, funded over 22,000 successful projects, with nearly 3 million backers and about $197 million pledged. Projects funded include albums, Apple accessories, clothing, films, video games and much more.

Kickstarter works on an all-or-nothing philosophy, meaning that the project must be fully funded before the allotted time expires or no money exchanges hands; this is to protect both parties involved. If the project does not receive enough funding, then there is no obligation for the investor to follow through. The investor is allowed to pledge money without the risk of the project not receiving the full amount needed to launch, and the investor subsequently losing his or her investment.

Kickstarter makes revenue through charging a 5% fee of the funds raised. The fee is only charged on successful projects, meaning that if your project is not successful you do not pay anything. Kickstarter's top funded project is currently the Pebble, a watch designed to connect with iPhones or Android phones to transmit data across Bluetooth so your watch can display messages, calls and emails. Pebble had a $100 thousand goal, but ended up raising over $10 million dollars from nearly 69,000 backers.

SEE: Valuing Startup Ventures

Claiming to be "the world's largest global funding platform," Indiegogo was launched in 2008 and is definitely a veteran in the industry. The company has two different funding methods: Flexible funding charges 4% if you reach your funding goal and 9% if you don't reach your goal, but you get to keep the funding you raised. Fixed funding charges the same 4% to successful campaigns or no fees if you don't reach your goal, but all contributions get refunded to investors. This method allows more flexibility when starting a campaign.

Another popular aspect of Indiegogo is that it is one of the few crowdfunding sites that are global. Since launching, the site has had over 100,000 projects from over 196 countries. With a recent round of financing for $15 million, Indiegogo's growth may be just beginning.

AngelList is a social network designed to connect startups with investors that has taken a different approach to crowdfunding. Rather than creating a site for people to invest directly with the startups, AngelList has created a free network for startups to create a profile on the site. The startup's profile is visible to all, but only the investors of their choice are able to view the fundraising section.

AngelList has a large network of potential investors made up of some high-profile venture capitalists, including Reid Hoffman, co-founder of LinkedIn and investor in Facebook, Zynga, Digg and more, as well as power venture capital firm Andreessen Horowitz, which has provided capital for Airbnb, Groupon, Instagram and some other successful startups.

Since launching in 2010, AngelList has roughly 2,500 investors with 13,000 startups registered. Investments generally range from $50 thousand to $1 million and approximately 400 companies have received investments from about 750 individuals. Successful startups that have used the site include Pinterest and BranchOut.

The site currently does not charge anything to the startup or investors for using the service.

SEE: When Selling Your Startup Makes Sense

The Bottom Line
Being a successful entrepreneur is the dream for many. With startups like Instagram being acquired for a $1 billion after being in business for only two years, one can definitely understand why. Although many other successful crowdfunding platforms do exist, the latter are a few of the most popular. If you have a great idea or wonderful cause, crowdfunding may be a great method to obtain capital.

Related Articles
  1. Entrepreneurship

    4 Most Successful Indiegogo Campaigns

    Learn about some of the most successful crowdfunding campaigns on Indiegogo, which raised millions of dollars for everything from electric bikes to beehives.
  2. Entrepreneurship

    7 HR Basics for Small Businesses

    Whether or not you are a fan of human resources, every employer needs to know the answers to these questions.
  3. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  4. Taxes

    Revisiting the Internet Sales Tax Bill: 2013 Vs. 2015

    Learn about the Marketplace Fairness Act of 2015 being reviewed by congress and the differences between it and the 2013 Marketplace Fairness Act.
  5. Markets

    The Biggest Private Equity Firms In India

    Learn about the leading private equity firms operating in India and which companies and industries are attracting foreign investment dollars.
  6. Entrepreneurship

    How an Internet Sales Tax Will Affect Your Small Business

    Learn about how the Marketplace Fairness Act may impact small business owners should it pass in the House and what the act requires from business owners.
  7. Entrepreneurship

    Preparing Your Kids to Take Over Your Business

    Most family businesses do not survive in successive generations, but these steps can help ensure that yours will.
  8. Entrepreneurship

    How Gross Margin Can Make or Break Your Startup

    Find out how your startup's gross margin can impact your business, including why a mediocre margin may spell disaster for a budding business.
  9. Entrepreneurship

    Top 10 Features Of a Profitable Rental Property

    Find out which factors you should weigh when searching for income-producing real estate.
  10. Investing Basics

    Internet Sales Tax's Effect on Interstate Commerce

    Find out how a national Internet sales tax could affect interstate commerce, and why some bigger online retailers are lobbying for such a tax.
  1. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  2. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  3. Do hedge funds invest in private companies?

    Hedge funds normally do not invest in private companies because of liquidity concerns. Capital funding for private companies ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  6. Can mutual funds invest in private equity?

    Mutual funds can invest in private equity indirectly by buying shares of publicly listed private equity companies, such as ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center