There are hardly some folks who could start a business without any financial backing from others. Unless you are from a wealthy family, you may roam around to find an investor.
After wandering at many banks or soul-crushing meetings, you have to be crippled by high-interest rates. Thankfully, there is another way called crowdfunding.
Crowdfunding is a process of involving investors and donors. It is one of the most exciting developments of investment for expanding business. Here in this article, everything you need to know about crowdfunding. Let’s get started!
What is Crowdfunding?
As the name suggests, crowdfunding is a way of engaging the crowd to collect funds through a complete approach. It’s a fundraising method that raises funds from a large number of contributors.
The raised funds are used for startups, business ventures, nonprofits, personal projects, etc. It is prevalent among startups. Yet, the established inventors, musicians, entrepreneurs, filmmakers, charities, etc. also opting for crowdfunding.
This idea has been around since 2003 on the internet. Some people find it awkward to ask for money from strangers. But, now there are a lot of trustable crowdfunding sites.
With a great project on hand, you got a higher chance of getting help. Overall, it’s a great way for creatives and entrepreneurs to get their idea into reality.
Crowdfunding: What Are The Types?
There are commonly four types of crowdfunding campaigns available.
- Donation-Based Crowdfunding: The investor pools their money to fund a charitable cause. You may or may not get something in return.
- Loan-Based Crowdfunding: An investor lends money to individuals or companies. The investor expects a set interest rate in return at pre-determined intervals.
- Reward-Based Crowdfunding: An investor gives money to the project or a company in return for a reward. The reward is non-financial, and it can be any product from the company.
- Equity-Based Crowdfunding: An investor invests in the shares that are sold by any company. The investor gets a profit-sharing from the company in the form of dividends.
How Does Crowdfunding Work?
Note that there are three participants in crowdfunding. They are the investors who are investing the money, an individual, or group who need funding and a crowdfunding website that connect both.
From getting a project to finding an investor, crowdfunding websites help you everywhere. Once you decide on a plan, the business or individual may ask a few things. Such as, how much fund is needed, what the fund will be used for, etc.
When you are sorted with the crowdfunding campaign, the next thing is to decide crowdfunding fulfillment. This service helps in fulfilling and shipping orders.
Where Crowdfunding Belongs in Your Project?
Simply put, you’ll need crowdfunding at the SEED or Pre-SEED stage of your project. The fundraising can start with your friends and family as well. According to the new regulations, you should test the water before bigger expenses come your way.
It is essential to find a better crowdfunding site for your intended use. With the right website and better planning, you will have a better chance of success.