New Development in Crowd Sourcing
in Crowd Sourcing
Growing Communities are Investing in Their Businesses
Businesses typically need a few things to achieve success. They need a strong market for their products and services. They need passion. They need expertise in their field. They need logistical support. They need community support. And, last but not least, they need MONEY! Tightening regulations in a risk adverse environment prevents full funding for many business start ups, so aspiring entrepreneurs are turning to Crowd Sourcing to provide the final piece of the financing they need to turn their business concept into business reality. Those communities that support crowd sourcing models gain more businesses, diversify their economy and create economic growth. Those that don't support new businesses simply wait for someone outside the community to come in and open something (they often wait a long time…).
Crowd Sourcing diversifies investment sources, thus mitigating risks for investors while providing entrepreneurs the capital they need to start a new enterprise or expand an existing one. This "Main Street" shift in philosophy could present a tremendous opportunity for local businesses throughout the United States. A one percent shift in investing from Wall Street to Main Street would add $300 Billion Dollars to local economies.
Crowd sourcing comes in three basic types:
1. Reward (donation) Based Sourcing
– This type of crowd sourcing is probably the oldest and most well known. "Let's all throw money in to help the community out by buying/funding _____" is a form of Crowd Sourcing. Sometimes people are rewarded with gifts or recognition in "Reward" based sourcing. Locally, the Granada Theatre Project, the Emporia Arts Center and several other public improvements are a function of Reward Based Sourcing.
2. Lending Based Sourcing
– Sometimes called "micro-loans", lending based sourcing creates a diverse funding stream by obtaining loans from several different sources. Traditionally, this has been limited to "friends and family", but more recently these lending systems have opened up to include entire communities that "give", but they expect some sort of return on their investment (we will get into that a little later).
3. Equity Based Sourcing
– In this scenario, people actually obtain a share of the business. Public "micro" stock offerings are fairly common in Europe, and have resulted in several new industries, retailers and service businesses. In the United States, we have only recently allowed Equity Based Sourcing through the Jobs Act of 2010. The Security and Exchanges Commission is working on rules to regulate the new stock offering environment so a group called "non-qualified investors" (people under a certain income range or net worth) can participate without a lot of extra paper work.
In Lending Based Sourcing, some of the repayment schedules are fairly creative and encourage both patronage and repayment simultaneously. For example, some bars are converting repayment to "bar tabs" for their investors. Some businesses repay a portion of "interest" with gift certificates to the business on a monthly basis. Some "repayment" includes business "swag" like t-shirts, glasses, stickers and other memorabilia. Essentially, some crowd sourcing allows the public to create the businesses that they want through cooperation in exchange for future product or service considerations. It's a future version of the classic bartering system.
On-line sites like www.kickstarter.com and www.indygogo.com provide potential businesses or business expansions with the national crowdsourcing resources they need. On a smaller scale, crowdsourcing can include a simple invitation to a "pitch" meeting or one-on-one conversations.
Why is this concept important for Emporia? We know that to achieve success wemust build wealth and we must grow job opportunities. In a community with a relatively low median household income and a relatively (compared to the communities around us) small trade area population, we must get creative. When we have the opportunity to create destination businesses, industry or business types that pull in resources from outside the area we must take advantage of the opportunity. That's the beautiful thing about crowdsourcing: we can talk about all the things we want and need in Emporia, and crowdsourcing allows us to put our money where our mouth is. Because, if we won't fund the things we want, no one else will either.