For decades, entrepreneurs have followed a traditional stair-step of financing methods to vault their companies through successive stages of growth. Starting with personal savings, they would often then raise seed money from personal contacts, move on to banks, angel investors and/or venture capitalists. Eventually, a successful start up would offer shares to investors and become a publicly traded company.
But openings onto that well-trodden path are narrowing. Banks and venture firms are less liberal with funds since the financial crisis of 2008. Initial public offerings of shares are also harder to float.
However, new fundraising mechanisms have been springing up. The DIY culture of social media has produced hybrid online platforms with elements of contributing, investing and marketing. Through Kickstarter and Indiegogo, business innovators rely on the kindness of web strangers to back their projects. And Congress has just approved another “crowdfunding’’ model, through the JOBS Act that would permit private online sales of company shares.
While supporters celebrate the new opportunities, some experts see dangers of investor fraud, as well as possible pitfalls for unwary start ups.
Click ahead to see what the various forms of funding are, and what entrepreneurs have used to build successful companies.
By Bernadette Tansey, Special to CNBC.com
Posted 2 May 2012