Manufacturing: What is Crowdfunding?

The idea of crowdfunding is simple. Large groups of people contribute small amounts of money for a project. Yet, this simple idea is fast taking hold of the business world, and could change the face of manufacturing.

Take Kickstarter for example. An online phenomenon, Kickstarter is a venture capital site that helps inventors, artists, designers, etc, get funding to transform their designs into actual products. Some projects have garnered millions of dollars in funding. Since it was launched in 2009, 2.5 million people have pledged $350 million dollars, funding more than 30,000 creative projects.

The success of Kickstarter has propelled the idea of crowdfunding into the spotlight, popularizing a new model could alter the face of manufacturing. Traditionally, an inventor would pitch their idea to venture capitalists or try and sell their technology to an established company. It is a distinct top-down structure where the public is given what the inventor creates. Crowdfunding upends this model. Instead of going to venture capitalists for funding, projects get their start with consumers. The consumer not only holds the purchasing power, but is involved in choosing the product in the first place.

Crowdfunding also offers an alternative to entrepreneurs in a difficult economic environment. In 2012, the total number of loans distributed in the U.S. by the Small Business Administration dropped by nearly 20 percent. Nearly 98% of business plans received by accredited investors are rejected, according to Forbes.

Crowdfunding is fast becoming a major source of innovation. It allows easier access to capital, and greater input from consumers. In the world of constant connectivity that social media has created, crowdsourcing has become a new business model that places the consumer at the beginning and end of the development process.

What do you think about the new crowdfunding model for manufacturing? Is it here to stay or a momentary trend? We’d love to hear from you.

From a local machine shop to a company with international operations, Sinclair Risk & Financial Management has the vast experience required to serve the complex industry of Manufacturing. Contact us today for more information about our Connecticut manufacturing insurance programs.