Crowdfunding is the practice of raising money by involving a group of people in your project. The people in this group contribute money to fund your venture and translate your idea to reality. Crowdfunding is also called crowdsourcing or alternative finance. Other names for crowdfunding are crowd sourced capital and crowd financing. Crowdfunding is a relatively new sector and it is still developing. However, it is growing very fast because it has great advantages for the project initiator and the investor. Before you take your project online for crowdsourcing, you need to understand how the process works.
The three parties involved
The three parties involved in crowdfunding are the project initiator (also known as the entrepreneur), the individuals who support and finance the project and the online platform that brings all three parties together. Two of the most popular platforms for crowdfunding are www.gofundme.com and www.kickstarter.com. You can use any of the sites above for your crowdfunding or search online for any other platform of your choice. However, before you take the plunge, you should know the benefits for the entrepreneur and the investor.
Benefits for the entrepreneur
From the perspective of the entrepreneur, crowdfunding is an excellent idea. This is because you can easily raise capital to fund your ideas and projects. In addition, a crowdfunding platform will give your idea or venture publicity. This gives you an instant boost and creates a market for your product.
Benefits for the contributor
People who contribute money to fund projects and ideas benefit from their contributions in different ways. There are three different forms of crowdfunding and contributors are rewarded in different ways. Donation crowdfunding is one of the most popular forms of crowdsourcing. In this form of crowdfunding, donors do not receive a monetary reward. They just fund the project for social or personal reasons. Debt crowdfunding is also called peer-to-peer lending or lend-to-save. In this case, the contributor is an investor and hopes to get his or her money back with interest. Equity crowdfunding is a form of crowdsourcing where the investor invests for equity. In this case, the investor gives money to the entrepreneur in return for a share in the business or project. If the business becomes successful, investors’ equity will become valuable. On the other hand, if the business fails, investors could lose their money.
One reason crowdfunding is growing at a very fast pace is that it is done via the internet. These days, many online crowdfunding platforms offer investors and donors the perfect opportunity for crowdsourcing. Below are some of the things you should do before you launch your crowdfunding project.
Do your home work
Do your research and ensure your idea is sound before you take it online. This is important because most people will not fund your idea if it does not make sense to them. Check out crowdfunding sites before you select the one that meets your requirements. Be honest and do not make promises you cannot keep. Finally, communicate with your donors and when the cash begins to roll in, use it judiciously.