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Capital raising for the masses

by Bruno Deshayes on 21 Apr 2016 permalink
Crowd funding is a new phenomenon in cyberspace at the cross-roads of social media and equity markets.

Raising funds for a small business was an anathema. You either borrowed funds from your bank manager or a local solicitor. Today people seek funding for all sorts of ventures like a music festival, a movie, a video game, a technical innovation.

There are two funding models: All Or Nothing and Keep It All. In the first all monies are returned to investors if the targeted amount is not reached by the deadline. In the later, the onus is on the entrepreneur to return funds to investors or carry on the project with whatever was raised.

The promoting website is the only one with a stable business model if you allow me to be circumspect. They don't offer any endorsements or guarantees as to what gets promoted on their pages but they levy a percentage tax on all donations transacted through them.

The amazing thing is that you see lots of hype about fashion, entertainment, technology but few brick and mortar businesses like your local garage, an independent corner store or a cheese manufacturer.

So what does the future holds? The monopoly of long established equity markets is under threat. The recent annual report of the ASX (Australian Stock Exchange) makes sober reading in the face of CFD trading (contracts for difference) and the growth of dark pools and HFT (high frequency trading).

So it looks like the big players are going to do their own thing anyway. They are a law unto themselves, transcending national boundaries and regulators.

When you have a business idea you would go for seed money or angel funding. As opposed to venture capital these involve much smaller amounts (up to $50,000) and seek active participation in the new start-up business. Many are searching high and low for the next facebook to emerge and you have to kiss many frogs to find Prince Charming.

The emphasis is not on creating employment for those who need it the most. Instead it is for going after the latest fads. A new app for mobile phones which will be so compelling that its distribution will reach a viral effect. It is free to download to gain instant market share and carries a payload of advertisements for all those who will join on the band wagon. It does not offer any intrinsic value until users realise that they have been duped and the cycle repeats itself.


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