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Crowdfunding could be a valuable tool for entrepreneurs

Entrepreneurs in Colorado have traditionally found it difficult to compete for venture capital funding with nascent companies located in major business centers like New York, Chicago and Los Angeles, but the growing popularity of crowdfunding could be helping to level the playing field for them, according to a study. Researchers from the University of California, Berkeley and Yale University looked at business startup projects listed on the crowdfunding website Kickstarter, and they discovered that these offerings were often of great interest to venture capital firms.

According to the study, which was published by the online journal Science on Dec. 23, firms that provide seed capital often look to websites like Kickstarter for ideas and to gauge how well a company is likely to perform. The researchers say that when the number of Kickstarter projects being offered in a given area increases by 1 percent, a similar increase in venture capital activity will likely be observed the following year. The researchers focused mainly on technology crowdfunding offers and ignored arts-related opportunities like film projects.

According to the study, the venture capital going to technology companies rarely leaves the San Francisco Bay Area or Boston, but this new source of funding is now giving companies in more remote parts of the country the opportunity to compete for some of this cash. These platforms could also provide entrepreneurs with the opportunity to avoid traditional lenders altogether and fund their new commercial ventures on their own terms.

While venture capitalists may provide much-needed funding for entrepreneurs, they also generally expect to be rewarded handsomely for the risks they take. Attorneys with business law experience may suggest alternative financing approaches such as crowdfunding when more conventional sources of capital are either not interested or make excessive demands. Attorneys could make their recommendations after evaluating the terms and conditions of crowdfunding platforms and other unconventional sources of financing.

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