Good and great morning here in Ashdod, a sunny day already 16C (61F) in the middle of our winter, who needs more? First hot Ashdodi Americano in my hand, time to start the day!

Today, I would like to use our coffee talk to explain what is crowdfunding. I see a lot of talking about it on social networks, media, and websites offering dreams of earning huge money from investments and so on.

As I deal with this issue (even before crowdfunding word was invented), starting with a group of 40 friends, wanted to invest about $5000 each in a startup I was consulting to on 2009. I didn’t find any legal way doing so other than open a company and all the hassle around. Through my investigations, I got exposed to the limits and laws of public investments.  Well, it ended with nothing, but since then I’m on it.

On the last months of 2015, governments around the world gave relief to small enterprises raising money from a lot of micro-investors and lower the regulations for doing it with authorized crowdfunding platforms.

Let’s try to organize all those words in a way it will be understandable. Crowdfunding is a mechanism where entrepreneurs and small enterprises can raise money for their idea from a large group of people and make it happen.  For now, there are five kinds of crowdfunding:

1. Donation – Usually social community projects were the money is raised for “doing GOOD”. It was known as a charity in the old days, people give money to a noble idea like arts, helping individuals and/or groups, etc. as a donator, you’ll get your name on the wall of fame and maybe a thank you letter.
2. Reword – Same as a donation, but, this time, it’s more about things like culture, education, artists, etc.  as a donator, you’ll get a real reward like show tickets, music disk, T-shirt other small prizes and your name on the wall of fame.
3. Pre-sales – actually it’s a kind of sophisticated kind of “Amazon” or “eBay”, were entrepreneur sale products before he manufactured or even finalize the development of the product. People will get the product at a great discounted price for helping an entrepreneur make his dream came true. The most common platforms for this kind of crowdfunding are “Kickstarter” and “Indiegogo”.
4. Debt (also known as Peer2Peer loan) – getting a loan from the banks can be a hassle and very Today you can ask a group of people to give you loans were they as individuals don’t risk a lot of money and you as an entrepreneur can have the full amount he needs.  Usually, the business terms are way better than banks.
5. Equity – “play like the big investors”, on one hand everybody would like to make BIG money from a successful startup. On the other, It is very hard today for early stage enterprise to raise funds. The combination of those two wishes is the equity crowdfunding. Were micro investors ($1000-$10,000) can invest in early stage startups and get equity (% of the company) with the hope that when and if the startup has succeeded, they will earn a lot of money. By the way, it will never happen but this is for anther coffee talk.

So, now if I wrote it clear, you should understand crowdfunding.  As always I’ll be glad to have your comments and thoughts.

Don’t forget to love someone today!

Nachshon Pincu