Many business ideas looking for capital have now switched from big banking institutions to crowdfunding in hopes of turning their ideas into actual ventures. Crowdfunding derives its name from the practice of getting funds or finances to support a project from numerous small time investors or “backers” through the Internet. While this has been commonly practiced in Europe and the United States, it was only recently that Japanese businesses have begun making use of it.
Popular crowdfunding sites such as Readyfor and Campfire have only been gaining traction in Japan the past year in spite of being launched three years ago. Platforms for crowdfunding have already achieved $5.1 billion in 2013 as estimated by research firm Massolution, a huge jump from the previous year. In 2012, only 1 percent of the funds gathered came from Asia with most of the bulk coming from North America at 60 percent while 35 percent was from Europe, showing how the West has gotten a huge start in maximizing this practice. Crowdfunding is one of the best ways to get capital for a project with minimum loss. The more number of participants who contribute to the project, the lower the impact to each investor in case of failure. This advantage is why many new ventures have marketed their ideas and business online to crowdfunding sites rather than big banking institutions, which have strict guidelines in approving capital based on the speed the investment will be recovered. A professor from the Graduate School of University of Tokyo, Noriyuki Yanagawa lauds the practice as one way of cultivating new ventures and businesses. “It’s very significant because it brings out ideas that were buried,” he said.
Start-up firm Whill was successful in raising ¥1 million (approx. US$9,770) on Campfire to come up with a prototype of a stylish wheelchair it unveiled at the Tokyo Motor Show, which is scheduled to be released to the general public in summer after getting funds worth $1.5 million in the United States. Many believe that the success of crowdfunding is because of the minimal money required to come out of investors’ pockets. Jun Akaike of Impossible Tokyo phrased it well, “Crowdfunding is the cheapest marketing method.” With this new practice becoming common in Japan, the Financial Services Agency is already set in regulating the practice and looking at coming up with rules by next spring to maximize and protect crowdfunding.
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