Businesses ask for money from a crowd for their projects/creative ideas who receive rewards in return on the successful completion of the crowdfunding goal
Crowdfunding is the practice of funding a project, venture or specific cause by asking family, friends, customers and a crowd of people to contribute or donate a relatively small, defined amount of capital in exchange for various rewards, typically via social media and crowdfunding platforms.
Crowdfunding can be divided into three categories:
- Equity-based crowdfunding – Under equity crowdfunding, a crowd is asked to donate to a business or project in exchange for equity.
- Donation-based crowdfunding – In donation-based crowdfunding, a crowd is asked to donate to a business or project in exchange for tangible, non-monetary rewards. These rewards may include an ecard, t-shirt, pre-released CD, or the finished product. People invest in crowdfunding because they believe in a cause.
- Debt-based crowdfunding – Debt based crowdfunding includes asking a donation from a crowd for business or project in exchange for financial return and/or interest at a future date.
- Crowdfunding offers a number of advantages. It has multiple benefits which can be achieved by a number of people contributing relatively smaller amounts of money towards a big/expensive purpose the cost of which may be not affordable for one or a few persons. It is useful in a number of situations such as for disaster-relief, creative projects, creating a saleable product, or creating a start-up.
- Crowdfunding is useful when you are short of finances or want to use this creative way to generate the money you need for your business or project. You can rely on the crowdfunding platforms to market your project, generate interest, and receive funds.
- Crowdfunding backers can be helpful for your business and provide useful feedback about your project.
The struggle is often at the beginning. Once your crowdfunding plans succeed, you may have unlimited opportunities.
- Your ideas get exposed to a vast number of people on the Internet and those ideas can be adopted by others.
- You may not get all the money you generate. The crowdfunding platforms may impose a limit on the amount of funds you receive.
- Crowdfunding regulations and taxation can be tough.
- Crowdfunding may include any project as it is only the creativity of the idea that matters.
- Crowdfunding can be fast, efficient, and effective if done right.
- Crowdfunding involves lesser risks compared with other business concepts and ventures.
- Possibilities of successful funding depend on the quality of your idea.