All about Crowdfunding


All about Crowdfunding

Crowdfunding is basically the art of raising money to fund a project through getting monetary contributions from a large number of people. It is a way of raising money by appealing to a huge number of people to contribute each a small amount of money which will in turn be able to finance a certain project. Many people go by the idea of asking a small number of people to donate large sums of money each. But crowdfunding works on the vice versa.

Crowdfunding uses the internet and social media to appeal to thousands of potential funders to contribute towards financing the project in question. The success of the funds appeal will depend greatly on how the project initiators reach out to potential financiers and how they popularize their appeal to a good number of people. This process has been successful in funding various major projects like creative projects, medical bills and expenses, scientific research funding, community oriented projects and many more. There are various types of crowfundings which include;

Debt Crowdfunding

Debt crowdfunding involves appealing to lenders to extend their hand and fund a project. The lenders give out their money to project initiators in terms of loans and expect to be paid back with interest. People mostly approach investors who are potential lenders and convince them to fund the project with assurity of returning back the money with interest. This method resembles a bank loan but the difference is that you take a large sum of money from the bank but here you borrow small amount of money from multiple lenders. This type of crowdfunding is popular for raising money for home improvements, to buy a car, debt consolidation or even to refinance credit cards.

Equity Crowdfunding

In Equity crowdfunding, investors give out their money not as a loan but in order to get equity in the company. Here investors give out their money in exchange for equity which includes shares in the company or even a stake in the company or business. Equity crowdfunding is popularly used to raise money to initiate a company or fund its launch.

Reward-based crowdfunding

This type of crowdfunding involves people contributing their money to fund a project in exchange for a reward. Here the contributors ensure they benefit from the fruits of the project which they contributed for. Lenders expect in return to benefit from items or products that the company or business is producing such as an album, electronics and many more. Most investors in crowdfunding are entirely hopeful of the returns of the project and will always monitor closely performance of the project to ensure they reap handsomely from their investment. They will even revise their expectations if appropriate returns are not met.

Donation-based Crowdfunding

In this type of crowdfunding, financiers give out their money without expecting any rewards in return. They extend their gratitude towards funding the project with an aim of fully assisting and financing the project for others to benefit from it. This type is used to raise money for non-profit making ventures, community utilities, philanthropic programs and ventures, building learning institutions and many more.

Crowdfunding has been a success in most occasions and has greatly helped in assisting variety of people and the entire community and has assisted in funding major projects of great importance.



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