What is Crowdfunding?
Crowdfunding is a way to raise money for a project by asking large amounts of people to give small donations. The money raised can then be used towards launching a company, project, or scheme. It is the opposite of what setting up a business usually involves – large investments from a select few.
With crowdfunding people set up a profile online and describe the business or project they plan on undertaking. If people are interested they can make a contribution. By presenting themselves online individuals can reach thousands of people and generate interest in their business.
One successful example is Amanda Palmer and her band The Grand Theft Orchestra. Amanda left her record label and became a sensation on the internet and social media. The band decided to create a new album and put out their project on crowdfunding platform Kickstarter. Through Kickstarter alone, they raised an amazing $1,192,793 in one month to go towards the creation of their album. This shows how powerful crowdfunding can be if people support your project.
There are three different crowdfunding models meaning people can invest in alternative ways.
Reward Model
This is one of the most popular types of crowdfunding. Here people will contribute small sums of money to a business/project in exchange for a gift. The reward received is usually the product that is being created, for example, a video game, trainers, cosmetics, handbag.
As reward crowdfunding is so popular there is a large range of websites to choose from. Some prevalent ones are:
• Kickstarter
• Indiegogo
• Patreon
• Fundable
• Rocket Hub
Donation Model
This model enables donors to give small sums of money to causes they support and would like to donate to. Unlike other models, donors do not usually receive a reward/benefit for their donation, apart from the appreciation of the person/people the money has gone to.
Donation crowdfunding is often used to boost funds for a charity or cause, such as paying for an individual’s medical therapy or regenerating a neighbourhood. This is another popular form of crowdfunding and there are many websites available including:
• Crowd Rise
• Go Fund Me
• Just Giving
• Crowd Funder
• Fundit.Buzz
Equity Model
With this model, individuals invest money into a business/project in exchange for equity. People will put money in and take out shares in the business. This means if the business does well the worth of the shares will increase. However, there is a risk of the shares worth decreasing if the venture does not succeed. Some equity crowdfunding websites are:
• Seedrs
• Crowdcube
• Angelsden
• Sharein
Debt Model
This model allows investors to lend money to a business or project. It is a form of loan and will be paid back with interest. This allows businesses to avoid lending a large sum from the bank and instead lend reduced amounts from multiple investors. Investors are therefore able to fund a project they are interested in and gain financial returns. Debt crowdfunding websites include:
• Prosper
• Funding Circle
• Upstart
• Bank of the Future
As shown above, Crowdfunding presents a range of opportunities for businesses and investors/donators alike. Individuals who want to start a new business or project can gain funding from all over the world and the investors can acquire rewards, interest, or equity. Alternatively, donators can greatly help an important cause or charity.
Crowdfunding websites allow entrepreneurs to develop their ideas and products and enable causes and charities to raise more funds towards important work/needs. They are worth trying out if you need to raise funds for a project, business, charity or cause.
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