Is crowdfunding a viable idea for your business?

In my article about the wisdom of the crowd, wisdom/, I wrote about this generation’s high regard for collective wisdom and action. This, however, exists not only in the realm of discussions and market research, but in important finance practices as well. This is why following the proliferation of collective trends such as crowdsourcing came the rise of crowd-based business practices, the most famous of which is crowdfunding.

Basically, crowdfunding is the practice of sourcing or delegating the responsibilities of fundraising and investing to the public (i.e. the “crowd”). A great chunk of crowdfunding activities are done through the use of online funding platforms such as Kickstarter, “the world’s largest funding platform for creative projects”. During the early days of crowdfunding, most people seemed to dismiss it as a passing fad or a short-lived business trend. But as crowdfunding systems like Kickstarter continued to show impressive signs of success, more and more entrepreneurs and even those outside the business sphere (e.g. independent bands and artists who needed a simple way to raise funds for their creative pursuits) have jumped into the crowdfunding bandwagon.

One of the weightiest issues that had to be addressed was that of credibility and trust. In traditional business transactions, investors would have to see proof of the business’ or executives’ credibility before deciding to invest in the company or project; but crowdfunding basically puts entrepreneurs at the risk of placing their business in the hands of strangers. And of course, it also works the other way: people are expected to fund and invest in projects and companies with the slightest security of returns. Needless to say, there are still a lot of holes and flaws that crowdfunding has to address; and frankly, a system as risky and unsecure could only last for so long. Still, crowdfunding has its merits and has obviously contributed something significant to the business sector: a sense of community. What crowdfunding has taught us is that at the end of the day, it is still our relationships that will keep business alive.

Knut Harald Nylænde is the founder and incumbent Chief Executive Officer for Moxie AS, an Oslo-based investments group focusing on the development and growth of small to mid- sized businesses. Drawing from his educational background in Law, Accounting, and Economics, and from his rich experience in management and finance consulting, Knut blogs about responsible business practices and trends.