Crowdfunding and How it works?

Crowd Funding dates back to 1713 when Alexander Pope united his subscribers to find the translation of Homer’s Iliad into English. He had promised to include the 750 donors’ names in the book in exchange for two gold guineas.

The Internet has modernized crowdfunding by connecting people in search of funds with the general public. Crowd funding is generally defined as the collective – ‘Crowd pooling funds’ to support a specific project or an organization. Crowd fund serves as an alternative source of capital to support a wide range of ideas and ventures. Crowd funding can also be a great way to fund ideas and it can also be a great way for new businesses to get some funding in the initial stages.

An entity or individual raising funds through crowd funding typically seeks small individual contributions from a large number of people. Crowdfunding campaigns have a specified target amount to be raised. It can also be a goal and an identified use of those goals.

The entrepreneur of the company usually offers donors non monetary goods in return for their donation. The reward is personal satisfaction. This makes crowd funding a very efficient and cost effective method to raise money. Some of the most popular platforms for crowdfunding are Kickstarter and Indiegogo.

But we also have to realize that not all the companies or entrepreneurs are successful in funding their campaign. The majority of the campaigns fail. They usually fail to hit their financial targets. Kickstarter’s success rate sits around 38%.

The ways to Endure a successful campaign

One of the ways to ensure a successful crowdfunding is when the entrepreneur defines the objective of their campaign. They also need to factor in how much money is being spent, thus consideration of the costs is also very critical. The entrepreneur also has to be content creator and talk with experts to improve upon the product or the idea. Wise use Networking is also very important to increase the reach of the campaign.

The different types of crowdfunding are:

Donation based crowdfunding

Donation based crowdfunding involves amassing high amounts of donations without needing to provide the investors with anything in return. It is usually used for charities and NGOs.

Rewards based crowdfunding

Rewards-based might seem similar to Donation based crowdfunding but there are key differences that make it one of the most popular forms of crowdfunding. This form of crowd funding is also the most feasible to startups to utilize. One of the main differences is that investors are provided with different tiers of rewards which directly correspond with the numerous wage pledges.

Equity based crowdfunding

This form of crowd funding is increasingly getting very popular among startups. One of the primary reasons is that startups are usually short of money and by providing investors with shares in their company can be a great way to raise funds rapidly.

Royalty based crowdfunding

It is a type of crowd funding that gives its backers a smaller percentage of the revenue that’s gained once the venture or project becomes successful and starts to generate money. One big difference between Equity based funding and this one is that backers will only get royalties based on sales that are made from the product they invested in.

Loan or debt based crowdfunding

This form of crowd funding is beneficial for the owners of the company because they do not need to give shares and royalty. Instead this is more similar to a typical loan where the project initiator has to repay the amount within a certain period of time. It can also be used to raise a comparatively large amount of money.