The Ethics Of Crowdfunding

Crowdfunding, a way for any business, group or individual to get the funds they need to improve their home, lifestyle or business, has gotten some interesting coverage in recent news. And the opinions are not all positive.

This form of funding allows people all over the world the ability to invest in an idea or project that they believe is worthwhile. The idea behind crowdfunding is that, if each of us contribute a little bit of money, we can make a big difference. The benefits are numerous. Not only can anyone posting a request for funding get instant exposure for their situation, cause or business, but can also give those wishing to inject a little good will into the world an outlet for doing so.

So how can this possibly be a negative thing? It isn’t the act of crowdfunding being scrutinized lately, but the ethics of the projects requesting funding.

The Evolution of Crowdfunding

Modern-day crowdfunding has been used by bands to fund recording costs, businesses to get start-up or expansion funding and those living in underdeveloped nations to help their communities since the internet’s infancy in 1997.

But the projects being funded were far less personal than what’s being requested for funding recently. One example is a couple in the United States who made the news for their crowdfunding request for money toward in-vitro fertilization treatments. The couple, who will need a total of $18,000 for their particular treatment, have used more than one crowdfunding site, designed specifically to help those in need of IVF and adoption services, but who are unable to afford it on their own.

But while the couple has seemed to be receiving overwhelming support, both from those who have donated money and observers on the sidelines, others are questioning whether or not crowdfunding should be used for such endeavors.

Blurred Lines

There are now a number of crowdfunding sites which are geared toward those who wish to travel. And not everyone will reveal the reason they wish to travel to their dream destination. So how is one to know whether the individual is seeking a much-needed getaway, or is planning to quit their job and see the world on the dimes of others?

Apparently, many of those who have turned to crowdfunding sites to help them realize their travel dreams have been met with insults from site members containing accusations of selfishness and fraud. It appears that, in the case of travel, the difference between bartering services in exchange for travel lodging is quite different from asking internet users for money to fund a trip.

Crowdfunding for High Tech Small Businesses

Any small but mighty technology company can use crowdfunding to get the capital they need. One such company is Pebble Technology, developers of a customizable ‘smartwatch’. The company successfully raised over ten million dollars via the Kickstarter crowdfunding site. Almost 70,000 individual investors contributed to Pebble’s ability to reach their financial goals.

Numerous small technology companies have since used crowdfunding to get funding, and with tech companies being at the core of job creation, crowdfunding may very well provide a way for jobs to be created inadvertently in the future.

The JOBS Act of 2012 has helped many technology businesses to legally offer equity positions to their investors, which opens up their ability to achieve bigger returns on their capital. This act allows tech startups and other businesses to raise up to one million dollars each year, through registered broker dealers or online crowdfunding resources.

The Campaign Matters

In all crowdfunding scenarios, what many users say matters the most is the campaign. Anyone asking for money through crowdfunding must approach their request properly. This means demonstrating the effort you have made to raise your own money, offering a reward for donations received that will be of interest to others, and letting others know that this is a one-time deal, at least as far as travel is concerned.

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Guest author Jesse Schwarz writes on a variety of technology-related topics. He recommends www.hostingandbackup.com as a resource for small business owners to assess various website building tools and important criteria for assessing web hosts.