Does ev­ery crowd have a sil­ver lin­ing?

The Jewish Chronicle - - FEATURES - BY JOY SABLE

NEARLY TWO years ago, a word was added to the Ox­ford English Dictionary: crowd­fund­ing. Its use had grown to such an ex­tent that it mer­ited in­clu­sion in the pres­ti­gious pub­li­ca­tion and, like many other terms we use to­day, such as Googling and tweet­ing, it is a prod­uct of the in­ter­net. But what is crowd­fund­ing and how can we use it?

At its best, crowd­fund­ing is the ul­ti­mate ex­am­ple of peo­ple power. Where once fund­ing for busi­ness start-ups would be the pre­serve of big fi­nan­cial in­sti­tu­tions or ex­tremely wealthy in­di­vid­u­als, now in­vest­ing in a bur­geon­ing en­ter­prise — some­times with the pos­si­bil­ity of a healthy re­turn — is within ev­ery­one’s reach.

The con­cept of crowd­fund­ing be­gan 20 years ago, thanks to some clever think­ing on how to put in­creas­ingly ac­ces­si­ble new tech­nol­ogy to good use. The UK rock band Mar­il­lion had a large fan base but not the nec­es­sary fi­nan­cial back­ing for a tour of the United States. Us­ing the in­ter­net, the band har­nessed its grass-roots sup­port and the tour, fol­lowed by an al­bum, was funded through fans’ con­tri­bu­tions. To­day, fan-based in­ter­net cam­paigns to fi­nance new mu­si­cal projects, tours or al­bums, have be­come an in­creas­ingly pop­u­lar way to by­pass the more tra­di­tional meth­ods of get­ting es­tab­lished in the mu­sic busi­ness.

David Landau is di­rec­tor of Right Record­ings, an independent record la­bel based in Lon­don and Nashville. He says crowd­fund­ing has had a strik­ing im­pact on the mu­sic in­dus­try. “It has given op­por­tu­ni­ties to artists who would not have had the chance to record their mu­sic for fi­nan­cial rea­sons, as la­bels th­ese days may not nec­es­sar­ily get in­volved in the record­ing costs. Crowd­fund­ing gives tal­ent the pos­si­bil­ity to be recog­nised where pre­vi­ously it may have passed un­no­ticed.”

It is not just the mu­sic busi­ness that has ben­e­fited from crowd­fund­ing. New cre­ative projects, lo­cal ini­tia­tives and start-up busi­nesses can all use it as a means of rais­ing the nec­es­sary cash to get go­ing.

There are sev­eral crowd­fund­ing mod­els and, be­cause it is a rel­a­tively new method of fi­nanc­ing, it is still de­vel­op­ing. As with many other chan­nels of in­vest­ment, there are risks in­volved. Cur­rently there is only par­tial in­dus­try reg­u­la­tion in this area. There is a UK Crowd­fund­ing As­so­ci­a­tion, which has its own code of con­duct for mem­bers (the on­line “plat­forms” which co­or­di­nate and ad­min­is­ter the fundrais­ing). The Fi­nan­cial Con­duct Author­ity (FCA) reg­u­lates some types of crowd­fund­ing but not all.

For in­stance, the FCA does not gov­ern do­na­tion-based crowd­fund­ing, where peo­ple give money to en­ter­prises or or­gan­i­sa­tions they wish to sup­port. Nei­ther does it reg­u­late pre-pay­ment or re­wards-based crowd­fund­ing, where peo­ple give money in re­turn for a ser­vice or prod­uct, such as tick­ets or com­puter games.

How­ever, there are reg­u­la­tions in place for loan-based crowd­fund­ing, where money is lent in re­turn for in­ter­est pay­ments and a re­pay­ment of cap­i­tal over time.

Sim­i­larly, in­vest­ment-based crowd­fund­ing, where peo­ple put their money into a busi­ness by buy­ing investments such as shares, is also un­der reg­u­la­tion by the FCA. Some say you should in­vest in a crowd­fund­ing scheme only if you are pre­pared and can af­ford to lose and in­vestors should al­ways be es­pe­cially wary about en­ter­ing into fi­nan­cial trans­ac­tions on­line be­cause of the risk of fraud.

Whether you want to in­vest in a com­mu­nity pro­ject with no fi­nan­cial re­turn, such as build­ing a lo­cal park, help a new band re­lease its first al­bum or sup­port a Dragon’s Den-type start-up, crowd­fund­ing could help you make a sig­nif­i­cant con­tri­bu­tion.

Con­versely, if you be­lieve you are the next Lord Sugar and just need that ini­tial fi­nan­cial boost, crowd­fund­ing is a pos­si­ble so­lu­tion. Make sure your pitch is in­spir­ing and you have done as much re­search as pos­si­ble, as there are thou­sands of other new busi­nesses out there also look­ing for start-up cap­i­tal. Be ready to an­swer ques­tions and be pas­sion­ate about your idea, so you can en­gage as many peo­ple as pos­si­ble on­line. It could be the first step in a bril­liant busi­ness ca­reer.


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