The " Crowdfunding " Option !

So - You have a brilliant new idea that nobody else has thought of and you see yourself as becoming fabulously rich like Mark Zuckerberg or Donald Trump.   There is just one small obstacle standing in your way.   You lack the money necessary to develop this promising innovation and bring it to market !

You could go to one of the banks and seek a loan, but unfortunately our banks are not the most innovative people.  Their lending practice is stuck to a precise formula that only seems interested in collateral.  What you need is what is called an "Angel Investor " - someone with both money and the foresight to share your dream - and bring it to fruition.

In recent times an innovation called "Crowdfunding " has appeared overseas.  Clever people have the option of appealing to the public to fund their startup on a direct basis rather than through a company listed on the stock exchange.   Perhaps this is the answer to both parties.   Interest rates offering are so lousy that many people are prepared to accept a higher risk in exchange for an opportunity to increase returns.   Unfortunately, until now that option was not available in this country.

Legislation is proceeding to make Crowdfunding here a reality.  Mum and Dad investors will be limited to placing funding to a maximum of $ 10,000 in local businesses needing to expand or to startups that they consider have merit and are likely to succeed.   It is likely that there will be a restriction on size and companies with assets above five million dollars will be excluded from seeking this form of finance, and intermediaries who process the legalities will need to be licensed.

This is a whole new ball game.  Equity financing by using the stock exchange is a mystery to many people, but buying into the needs of traders in your local shopping centre who wish to expand or modernise is an entirely different equation.  More importantly, the people investing can keep track of progress because their money is going to work locally, right before their eyes.

There is certainly a risk factor, but Crowdfunding will offer a wide spread of different sized opportunities.  The capital needed for some projects will pool many investors to reach the required funding level but others may involve a single investor to get a project off the ground - and therefore the lender could expect to be involved in day by day decisions.

Hopefully, this legislation will be phrased to offer protection against " fly by night " operators trying to fleece the public.  Investors need to carefully consider each funding proposal and evaluate what is being offered.  It may be a nominated rate of interest on the funds invested, or it may be on a profit share basis - with the investor owning what is really a share of the business equity.   That is the great value of Crowdfunding to both parties.   It offers "opportunities " that are not available in the general money market.

Crowdfunding is not for the faint hearted.  Not every "great idea " actually morphs into a viable business, but it does offer an opportunity for the the wise and far sighted to invest outside the limited returns offered by fixed term deposits and government bonds.   Hopefully, common sense will prevail and that old maxim of "not putting all your eggs in the one basket " will apply !