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How Crowd-Funding Is Changing Online Business

Expert Author Alexander Kozlowski

There is that urban myth about a programmer who wrote a program for a bank, where for every transaction done, a deposit of one cent, I think it was US cents, into his own account. Eventually he had millions but unfortunately for him he was caught and imprisoned. I am not sure if the story is true or not but the point of the story is that he used minimal amounts on a large scale to make millions in a very short time period.

The other day, through random surf around on the Internet, I discovered that there is a growing online trend, the concept of crowd-funding. Perhaps it is not such a new concept as politicians have been doing it for years to raise funds, even charities or entrepreneurs do it. However what is new, at least for me, is that it derives from crowd-sourcing or user generated content, which involves allowing work, or in this case investing, to be outsourced to the masses or particular groups of individuals therefore making crowd-funding one part social network and one part capital accumulation or fund raising. What makes this even more interesting is that it is being used as a business model.

Essentially the model includes many micropayments, done via supporters, or as some entities call them micro-investors, who all donate or invest a small amount into a concept or product which will eventually, pay off if enough people provide the determined amount. If the determined amount is not reached there is no payoff to anyone which can make it a bit of a gamble. Should the amount be reached all the investors are rewarded in some manner, either in a cut of the total future sales or provided with goods or services exceeding their initial payment. Crowd-funding entities seek to harness the enthusiasm as well as the cash of strangers, usually from the Internet, by promising them a cut of the returns (the incentive) which, in my opinion, is similar to concepts found in gambling where a higher risk equals a higher payoff usually.

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