Crowd-Funding vs IPO
Also referred to as crowd sourced capital, or crowd financing, crowd funding can be used for a number of reasons, such as to raise funds for disaster relief, or generate interest in a cause. It can also be used to raise funds for a startup company, which may be referred to as seed funding or angel investing. Social networks on the internet are seen to be great tools for crowd funding, and with the delays associated with IPOs at this time, analysts believe crowd funding may become a viable alternative for raising additional capital for expansion of existing businesses.
Volatile markets continue to make investors cautious, the reckless abandon with which banks were lending money has been abandoned as they hold on to their cash, and the government appears to have run out of options in their stimulus efforts – all of which impact negatively on Wall Street. While IPOs and going public are unlikely to lose their appeal, crowd funding can prove to be less costly, more efficient and flexible. Using online social networks to source investors, and for investors to discover viable companies to invest in, has resulted in a host of crowd funding facilitators, with the concept working so well, that some companies may choose not to go public at all.
Of course, any ground-breaking concept will have pros and cons. Crowd funding supporters point out that it allows innovative thinking, not restricted by corporate boundaries. One of the main disadvantages of crowd funding is that in order to get investors to buy into the project, ideas need to be made public in some detail, putting the fund-seeker at risk of having the idea stolen. Also, securities laws tend to be complex, and crowd funding participants need to make sure they are not violating any of these laws.