Crowdfunding is a concept denoting a new direction in business and finance. In the US, the term has been known for a long time. For more than a decade of its existence. Crowdfunding has helped many young talented entrepreneurs to realize hundreds of creative projects and creative ideas.
The concept was introduced in 2006 by Howie. The literal translation of the concept means “crowdfunding”. You can find similar definitions of crowdfunding in textbooks or on the internet – it is the cooperation of people who voluntarily give their money or other resources to support the efforts of other people or commercial enterprises.
The goals of this method of raising funds include:
- Production of a new product
- Events and cultural events
- Help those in need
- Support for legal entities and individuals.
An undertaking for which finances are collected can be either commercial or non-commercial. People who need money are called recipients, and those who give money are called donors.
In the modern world, the search for financial support passes through the internet, because it has a huge audience.
Tools for crowdfunding as an expert
Now that you know the structure and how to devise it to succeed, it is time to launch your collective financing campaign. You will need to master some areas such as text writing, graphic design, photography and social media management. Keep in mind that in all of them you can find freelancers who help you perfect what you can’t achieve yourself.
Do you need someone to write or translate your proposal? A freelance proposal writer can do just that. Moreover, other freelancers like graphic designers or one who specializes in social media management can help create your logo, design your social media templates, images and posts.
The characteristics of crowdfunding
The attributes of crowdfunding include the following:
A clear idea
To collect the necessary amount of funds, the recipient must offer the audience an exciting and well-thought-out idea. Nobody will give money for a strange and incomprehensible business idea. If the project is commercial, then the benefits that they will receive by participating in financing should be evident to people. For instance, if the recipient decided to produce children’s toys in their garage, he or she should describe in detail how much money will be needed to purchase materials and equipment and what kind of profit is expected. In fact, a ready-made business plan should be submitted to the public.
There are several crowdfunding sites that don’t suck. Group members can create a project on many crowdfunding platforms and announce bonuses for donors, depending on the amount of investment.
Fundraising should have a time frame. With that, it will become clear to identify what is the preference of people at large.
There is no guarantee that the donor will receive back the invested funds since the recipient may be mistaken in the calculations and the end, something might go wrong. Moreover, there are non-profit ideas where the return on investment to donors is not implied at all.
At crowdfunding venues, a person can open fundraising for a variety of projects – commercial, social and cultural.
Focus on results
A person or legal entity that has received financial support through crowdfunding must report on the work done and the money spent or returned to the donors.
It can be considered a form of crowdfunding. It differs from other areas as the donors donate their money to the recipient not free of charge, but with the prospect of making a profit.
Types of crowdfunding
There are three main areas of crowdfunding:
- Reward crowdfunding.
- Equity crowdfunding.
- Debt crowdfunding.
Reward crowdfunding is the most popular type of crowdfunding. Its main advantage which provides such popularity is that the donor receives a particular bonus for his investments. Remuneration is rarely material. Let us explain it to you with a specific example.
Modern creative youth, in every way, strives for self-realization. Often, to realize an idea, you need the money that beginner musicians or artists don’t have yet. In such a situation, crowdfunding comes to the rescue. For example, a music group that has several thousand fans decides to raise 500 thousand dollars to record a studio album.
This kind of crowdfunding is similar to a serious investment in the development of a commercial enterprise. The donor is offered a certain share or percentage for the invested funds. Simply put, this is an excellent way for entrepreneurs to find partners and investors. This kind of crowdfunding for a business can be applied to launched projects and to those that are just preparing to enter the market. However, the recipient does not guarantee a profit. The donor must be aware of all the risks associated with investing and be prepared to lose investments.
Equity crowdfunding is perfect for SME (small and medium-sized enterprises) because it often needs cash injections for intensive development. Many small companies don’t want to rest. Instead, they prefer to strive to grow. To do this, they need additional funding. Crowdfunding will solve this problem and attract the right number of investors.
This kind of crowdfunding is similar to the previous one with the only difference being that the money is loaned. This is clear from its name. The recipient promises investors either a return on investment or a share in the enterprise. At the same time, donors are at high risk by investing their money, since they cannot be if they will receive it back. On the other hand, debt crowdfunding is an excellent opportunity for beginning entrepreneurs and start-ups to find the necessary capital, while promising a refund or a share in the company.
The Final Word
Realizing a new, unique idea is always a risk. There is something to be afraid of both by the recipients and donors. However, if you use the technology to your advantage, it is bound to get you great results.