You may have vivid (and not-so-fond) childhood memories of being asked to take home a sponsorship form in support of a school fund-raising effort. Sometimes you were required to participate in a walkathon based on your pledges, but very often it was merely a symbolic effort to bring in cash from friends and family.

These promotions were usually quite successful in helping schools and other institutions to generate much-needed capital to carry out important projects. Sponsorships have been used to buy sporting supplies, send students on trips overseas, and even build auditoriums. Individuals can truly be powerful when they co-operate towards achieving a common goal.

One, one coco full basket

Recently, I received an e-mail that invited persons to sponsor the entrepreneurial efforts of a young lady who wished to publish a daily calendar featuring Jamaican proverbs. The link pointed to a website, Sponsume.com, where you could support the project either by giving US$5 in sponsorship or pre-ordering various quantities of the proposed item.

The idea is that with the financial assistance of individuals who support her dream, the young entrepreneur would be able to raise enough funds to carry the project into fruition. Sponsume.com is one of several websites that provide an Internet-based platform to help persons to solicit money in this rather creative way.

Crowd support is vital

This method of fund-raising is called crowd funding or crowd financing. Wikipedia.com describes this as “the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organisations.” Crowd funding can be used to support start-up businesses, movies, disaster relief and even political campaigns.

To be successful in using crowd funding, entrepreneurs would have to first work towards building a loyal following of persons who trusted them and their work, and who would be willing to back the project without hesitation. Fortunately, Internet and social media applications can help persons to create the viral support required to make it work.

Cautionary crowd control

Crowd funding has some inherent disadvantages for both the donor and the entrepreneur. Since the final product hasn’t been completed, it may end up looking vastly different from the proposed offering. The entrepreneur may not raise sufficient funds to start the project but, depending on the sponsorship site, may still get to keep the money collected.

Sceptics may believe that the fund-seeker is attempting to take people’s money without intending to deliver any goods in return. The entrepreneur also faces the risk that after posting their idea online, someone else may copy it before it comes to market. Having a trusted track record and obtaining proper intellectual protection could help to mitigate these problems.

Supporters or investors?

Crowd funding might present some blurring of the legal lines as it pertains to soliciting funding from the general public. Depending on the legislations that govern the issuing of securities in a country, and the type of product being offered, an entrepreneur’s fund-raising campaign could possibly be interpreted as a type of investment scheme.

In the United States, President Obama recently signed the Jumpstart of Business Startups (JOBS) Act, which removed a ban that regulated how private companies could solicit money from the public. It would be wise to obtain legal advice in your country before engaging in wide-scale efforts to raise money to fund your business idea.

Local crowd funding options

Thanks to the Internet, the world is a global marketplace; and with the potency of brand Jamaica, any one of the international crowd funding websites could present financing opportunities. Popular sponsorship sites as listed on Forbes.com include Kickstarter.com, StartSomeGood.com, Indiegogo.com and Rockethub.com.

CaribbeanInvestmentNetwork.com purports to connect regional-based entrepreneurs with angel and private investors and venture capitalists. There are also online directories that may point you to investors with special interests in Jamaica or the Caribbean. With any opportunity sourced on the Internet, ensure that you verify its authenticity before proceeding.

So, if you have a business idea but you’re short on cash to get started, don’t despair if you can’t access a loan or other traditional financing. Crowd funding sponsorship may be a viable option to obtain money and also pre-market your product to thousands of persons via the Internet. Be creative and go for your entrepreneurial dream!

Copyright © 2012 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, November 22, 2012

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl