Early-stage companies need tremendous amounts of cash to grow
rapidly. Yet, angel group and venture-capital firms are not usually
a realistic option for early stage startups. Additionally,
entrepreneurs often find that financing options such as savings,
friends, family, and bank loans, even if available, cannot cover
the high startup costs attendant to growing a business. Recently,
the media has anointed "crowdfunding" as the solution to
this startup capital gap. But what exactly is crowdfunding?
Basics: Equity or Reward Crowdfunding
The concept behind crowdfunding is straightforward: an
entrepreneur solicits the public (i.e., the "crowd") for
many small contributions to grow his or her business. The benefits
from this type of fundraising are clear — an entrepreneur
avoids awkward appeals to friends and family for money, sidesteps
the challenges of obtaining and repaying a commercial loan, and
postpones fundraising pitches to angel groups and venture
capitalists
