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Businesses, Brushed Off by Banks, Look to Customers for Funding

"The money is nice, but you're really trying to raise awareness," he says. "In both instances, I was really pleased. There are a lot of disgruntled writers [who participated]. They just thought that it was really neat that an author was taking something into their own hands."

As of April 2012, there were 452 worldwide donation- and equity-based crowdfunding portals (mainly in Western Europe) that collectively raised $1.47 billion and funded more than 1 million campaigns last year, according to Crowdsourcing.org, a website geared toward the crowdfunding industry.

The report estimates total funding from these portals will double in 2012.

Earlyshares.com, an equity-based crowdfunding platform, has more than 2,200 small businesses waiting for the rules to be in place to begin using the equity-based platform. Of those, over 65% are established companies such as pizzerias, advertising firms and dog walkers as opposed to startups, the company says.

"This is the first time that you have a financial tool that is not industry-specific or that isn't [just for] high-growth, high-potential businesses," Maurice Lopes, co-founder and CEO of EarlyShares.com says. "This is more along the lines of filling a gap for the average Main Street [business] from $50,000 to $500,000."

"Crowdfunding is a great tool if you own a pizzeria and you want to open location number two. You need $300,000 to $400,000. You ask your customers to be investors. Now they own a piece of the pie. There's the local community in investing [as opposed to simply] getting a return. That's what crowdfunding will be about," Lopes says.

Cunningham believes that the two models -- donation-based and equity-based -- will feed off each other.

"The donation model will, of course, continue and will be for certain things that are not appropriate for the equity model," such as medical treatments and artistic endeavors, whereas other campaigns that start out as equity campaigns will fail, try again using the donation model, and be successful, he says.

A drawback to popular crowdfunding sites like Kickstarter and Indiegogo is the all-or-nothing contingency. If a campaign doesn't hit its goal amount, it doesn't get any of the money raised.
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