Crowdfunding in Tough Economic Times: A fairly painless pinch in exchange for some Awesome Karma.
Crowdfunding, the buzzword of the moment representing a business concept that doesn’t require a semester at MIT to understand – it’s pretty straightforward, actually. To most entrepreneurs and business leaders, crowdfunding is a forward thinking mechanism for doing something good in the course of doing business, something that inevitably helps out a person or persons in need.
Crowdfunding is something that appeals particularly (but not exclusively) to a younger demographic of entrepreneurs who feel an obligation to be a part of the solution, and we say more power to them! In my client’s case, he created an unusual twist to the crowdfunding concept by hooking it to his online hardware and bath fixtures business.
Instead of asking customers to donate, David Mason, Founder of CabinetHardware.org, contributes 10 percent of each buyer’s purchase out of his business’s coffers through the charitable arm of CabinetHardware.org, the FlowOver Project. All he asks of the customers is to learn a little bit about the eligible families his business sponsors, families who have lost everything due to disaster or life crisis, and cast a vote for the one they feel deserves the 10 percent proceeds that come from their purchase.
People in need come to the FlowOver Project and fill out a grant application to become eligible for a grant for anywhere from $1,000 to $10,000. Once the visitors’ votes reach 100 for a family in need, they are eligible to be selected as grant recipients by the site’s customers. For those unfortunate people whose suffering Mason hopes to ease, he has combined crowdfunding and e-commerce practices and created a new kind of model that no one else has attempted yet.
Crowdfunding in many instances still has some kinks to be worked out, but with a little ingenuity and a genuine desire to make a difference, entrepreneurs like Mason can work collectively with consumers to save the world, or at leas a small portion of it, one family at a time.
There are many different mechanisms through which these crowd funding platforms are made available. Crowdfunding comes with limitations if you’re planning to earn a profit. In fact, the U.S. Securities Exchange Commission has been talking about promulgating regulations to legitimize crowd-funding-for profit, but until regulators get to writing some rules and letting everyone know about them, the use of crowdfunding for profit remains illegal.
But Mason’s style of crowdfunding is not only legitimate, it’s good business policy (and good karma.) The type of crowdfunding I’m talking about combines ordinary, hard working businesses that feel they have a duty to help solve social and environmental problems within the world community. Crowdfunding doesn’t always have to be a gift, never to be paid back. Some business owners apply crowdfunding principles to loans, but the loan must be repaid interest-free. There must be no expectation that anyone who lends money will make a profit (interest) on the loan. While there may still be lending laws that apply as to how this is done, it won’t trigger the prohibitions under securities’ laws, as long as you don’t pay interest.
While there may be some high profile examples of projects that have raised millions through crowdfunding, most do not; not yet, anyway. In fact, most commercial ventures raise very little through crowdfunding. If the intended purpose is kept up, if crowdfunding remains and grows into a strong case for unadulterated corporate altruism, hopefully it will continue to grow and fulfill its promise – to make business a better citizen.
Guest blog post submitted by Liz Ernst