It’s an innovative method for raising funds for a project. Its focus is on small donations from a lot of supporters, instead of a small number of big sums. Here, we want to tackle down the idea behind crowdfunding from the perspectives of potential investors as well as people who look for funds to make their projects come to life.
Even though this method must be the most democratic and accessible way of collecting money anyone could think of, the origins of this method are much more exclusive – fundraising balls were one of the first organized events that you could go to and donate money for a cause. Apart from those, of course, anyone can arrange crowdfunding for their project. But here, we want to cover the idea of crowdfunding being executed by a third party, for example, by internet platforms.
What can I gain from crowdfunding?
For an author of a project, it’s the best way to see if your project is loved by the public. If your community-oriented social entrepreneurship idea gets funds from a widespread audience, it means it will most probably become a commercial hit. Moreover, this procedure can save your originality, as you can advertise your idea any way you want and pay a small fee for being enlisted on an investment platform. Otherwise, in order to pursue your dreams, you might be forced to sell the rights for your own idea to a big corporation that has no intent to keep it in the original way. So it’s your chance to express yourself and create your invention on your own terms, no matter if it’s a revolutionary product, an artistic piece, or a local, family-run baking business. Crowdfunding supports authenticity and is mostly based on tight ties in communities.
For a potential investor, it’s the best way to shape the reality around them by supporting ideas that align with their ideals or by backing projects that solves their problems. Furthermore, as we explain in the next section of the article, crowdfunding grants an amazing possibility of return on your investments!
Types of crowdfunding
There are two most basic forms of crowdfunding – equity based and reward based.
But what hides behind those terms? Equity-based crowdfunding: It means that you can back a project with a certain amount of money and in return, you receive a share, part-ownership or a right to vote in the matters concerning the project (so it is a long-term arrangement). But as you can probably deduct, this type of crowdfunding requires extraordinary pitching technique. Investors have to believe that by backing the project in the initial stage, they will get a lot of profits later due to the project’s success. One of the emerging trends is tokenized crowdfunding. If you’re not familiar with the terms, we will give it to you in the easiest way possible: a person has an idea for a project, but lacks funds for it. The creator can arrange the issuance of the tokens on a tokenizing platform that uses blockchain solutions and creates an exchange in the equity-based crowdfunding system. Each token is a confirmation of a transaction (i.e., backing of the project) and can later be exchanged for money or other type of profits.
The reward based crowdfunding means that as a token of gratitude for your financial contributions, the author of the project you invest in will send you gifts, such as t-shirts or mugs with a logo, or any other gift that was previously agreed upon. This is much less complicated than the first one, but then the benefits might not attract that many people.
What should you keep in mind when engaging with crowdfunding?
It is important to remember that most current crowdfunding platforms don’t have an evaluation of the projects – which means that they can enlist any project on their fundraising platform, even the ones without prospects for finalizing. Watch out for these kinds of projects and look for websites that ensure analysis of commercialization opportunities.
Moreover, if you’re looking for investment ideas when researching the world of crowdfunding, it might be useful to look up the areas of expertise that are innovative and resonate with creating the world of tomorrow, as these ideas have a bigger chance of having a high return on investment!
To sum up, the crowdfunding market is constantly enlarging. Owing to this method, it is easy to find new investors or ideas to invest in!