Around Acadiana

Feb 28, 2013 4:31 PM by MELISSA CANONE

BBB advises caution when participating in Crowdfunding

With the advent of the internet and social media, a completely new way to invest in business has arisen. Crowdfunding is a method of raising capital in small amounts from a large group of people using the World Wide Web.

Unlike funds from venture capitalists or angel investors (also known as a business angel or informal investor) - an affluent individual who provides capital for a business start-up - the money raised through crowdfunding doesn't necessarily buy the lender a share and there is no guarantee it will be repaid if the venture is successful.

Crowdfunding is also known as crowd source capital.

Crowdfunding allows individual investors to pledge funds, sometimes as low as $5, towards startups around the world.

While this is a great opportunity for potential business ideas to become reality, Better Business Bureau of Acadiana reminds backers that there can be dangers with these types of investments.

Many crowdfunding services are based on an all-or-nothing funding model, where entrepreneurs must abandon projects and return pledged money to investors if goals are not met by deadlines.

However, meeting funding requirements does not necessarily mean that proposals will ever come to fruition; businesses will still need to obtain licenses, find commercial space, line up suppliers, hire employees and fulfill other fundamental obligations.

With this relatively new form of investing, understanding the details of different crowdfunding sites and proposals is critical. BBB encourages investors to ask questions:

» Do proposal details check out? Is there verifiable contact information?

» If projects do not reach funding goals, will money be returned? How will money be returned? What is the timeline for getting money back?

» If projects do reach funding goals, how long until startups are operational? How long until there are profits? When can investors expect to earn returns or see physical products?

» Are there contingency plans for failing projects if fund requirements are met? Check with the U.S. Securities and Exchange Commission for federal oversight and regulations on Internet crowdfunding.

The BBB of Acadiana works for a trustworthy marketplace by maintaining standards for truthful advertising, investigating and exposing fraud against consumers and businesses. Please contact the BBB at www.acadiana.bbb.org or (337) 981-3497 24 hours a day for information on businesses throughout North America.

The BBB of Acadiana services the parishes of Acadia, Evangeline, Iberia, Lafayette, St. Martin, St. Landry and Vermilion.

 

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