In the age of digital connectivity, crowdfunding has risen as a beacon of hope for dreamers and doers alike. But what is crowdfunding and how does it work?
From small startups dreaming of launching their first product to artists seeking to produce a groundbreaking piece, it empowers all. It contributes to the innovative circle by pooling resources from a global audience.
This phenomenon uses the internet to collect small contributions into a substantial capital force capable of bringing innovative ideas to life.
This article will guide you through the concept of what crowdfunding is, how it works, its perks and downsides, as well as the process involved.
What is crowdfunding and how does it work?
Many of us have heard the quote “Little drops of water make the mighty ocean“, that’s exactly what crowdfunding is. It is a pivotal initiative for innovative projects and personal aspirations.
Whether it be financial support for personal needs, attending college, or funding your business, it supports all needs.
To put it in simple words, crowdfunding is an innovative financing method for gathering funds for your project or a venture from a mass of people.
How does it work?
There is no rocket science to learn how it works. You present your idea to the people seeking monetary support in exchange for equity, debt repayment, or goodwill.
Most of the crowdfunding websites have an easy user interface. Find the one that works for serving causes or ideas like yours and endorse your project.
One can search for popular crowdfunding platforms available on the internet. Create your account for the specific website with your details and post your story or campaign.
Pros and Cons of Crowdfunding
Just like any other funding or resourcing agency, there are certain pros and cons of crowdfunding as well. It is up to the project creator, the investors, and the funding channels how to make it beneficial for all.
Some of the pros of crowdfunding are:
- There is low risk involved for startups and businesses seeking funds through crowdfunding.
- Creators get a wide platform to promote their ideas and reach out to a bigger mass of people.
- Fundings generated through this channel have limited restrictions on how to use it.
- Unlike traditional funding methods, such pooling of funds brings along seasoned investors.
- A variety of investment options is another major perk of it, specifically for the contributors.
Similarly, there are certain drawbacks of crowdfunding too, some of which are mentioned below:
- Gathering the attention of potential investors can be a tiresome task.
- Every crowdfunding platform has its terms and conditions. Sometimes these may be difficult for fundseekers to comply with.
- There is always a risk of missing your expected funding target. It takes more than just a captivating story to get attention from capitalists.
- A crowdfunding campaign has a limited timeline. This might not always be sufficient to get as much visibility as required.
Types of Crowdfunding
Although you can differentiate crowdfunding into different types based on the purposes, there are 4 major types of crowdfunding in general. Namely, these types are donation-based, reward-based, equity-based, and debt-based crowdfunding.
All types of it have their perks and drawbacks. Both the creators and contributors can choose the funding course that meets their needs and vision.
Donation Crowdfunding
As the name suggests, donation crowdfunding is the most basic of receiving funds through generous donations. This is the most common type of crowdfunding that is known to all.
It is the best way to gather funds for charities, community issues, or in case of catastrophic events such as aid for fire damage, support the victims of natural calamities.
You can also seek donations for personal causes such as medical emergencies, a personal cause or to gather funds for a personal project.
Reward Crowdfunding
Coming to another common type of crowdfunding, reward crowdfunding is similar to donation funding. However, the fascinating fact about this type is that contributor gets non-financial benefits in return for their donation to a project.
Such funding is popular among creative projects such as musical events, art exhibitions, charitable events, and so on. Here, the donor gets tickets to the events, souvenirs, or gifts acknowledging your contribution.
Equity Crowdfunding
If you invest in a project or a company through a crowdfunding platform in exchange for equity participation, it is called equity crowdfunding.
The funder invests in your campaign with an expectation for shares of your business or to have a stake in the venture.
In order to generate the desired amount of funds, your project proposal must commit to growth. Or else there is no compulsive reason for an investor to be interested in your project.
Debt Crowdfunding
Sometimes, funders invest in your project to generate financial interest from the money they contribute to it. Such a mutually beneficial crowdfunding type is called Debt Crowdfunding.
This kind of crowdfunding is quite popular among startups, entrepreneurs, and business projects.
Many might question why you should crowdfund when you can take a loan from banks to invest in your project. But for your information, the interest for debts borrowed through crowdfunding is comparatively lower.
GoWithFund is a common platform for all kinds of crowdfunding seekers, donors, and investors. You can invest selflessly as a donor or choose to be an equity or a debt investor.
How to Do Crowdfunding: Four Steps to Start Your Crowdfunding
Step 1: Select a Suitable Crowdfunding Platform
Whenever you think of gathering funds from a crowd, think of a platform that has as many audiences as possible. The more number of viewers your campaign gets, the greater the funding.
Another thing that a creator needs to take care of is the suitability of the platform. If the platform is for equity investing or debt investing, non-profitable donation funding cannot be gathered.
Step 2: Write a Creative Story
It is equally important to create a true yet creative story to generate the interest of your investors for funding.
For equity and reward-based funding, make sure to include the benefits of investment as well. This hits the right spot to attract your targeted audiences.
Step 3: Set Your Target
What is your targeted amount of funding? You need to set a number of your expected funding while you post your campaign on a crowdfunding site.
Make sure to integrate the marketing costs, charges of the crowdfunding platform you’ve chosen, and other operational costs too.
While it is safer to set a higher funding goal, it is equally important to keep your timeline in mind. To avoid disappointment, set a budget that is possible to gather.
Step 4: Launch Your Campaign
Once you’ve created a gullible story and fund target, keeping your potential contributors in mind, you are ready to launch.
Create an account on the crowdfunding website and set up the project campaign. Wait until the set amount of the fund is collected over the preset time.
How Crowdfunding Helps Companies and Individuals
Almost all of the crowdfunding platforms are dedicated to serving people while generating a small benefit for themselves. Whether for individuals or companies, such a site has revolutionized the lives and businesses of people around the globe.
For Companies
As a company doing business, crowdfunding helps to get attention from investors and also advertises the company profile. In addition to the amount gained from fundraisers, companies also earn the attention of capitalists who go beyond the project to support.
For Individuals
Similarly, many individuals have been able to accumulate donations for medical, social, and welfare causes through crowdfunding.
Crowdfunding benefits for individuals are not limited to generous donations. You can also ask investors to contribute to your startup or to attend an event.
Top Crowdfunding Websites
To ease your process of seeking funds, we have listed some of the top crowdfunding websites relevant to current trends. Take a look and post your campaign on the one that suits you the best.
GoWithFund
Out of the several blooming crowdfunding platforms, GoWithFund is one the of most innovative ones to raise funds for all types of purposes.
Whether you want to create a project to fund your novel business ideas or want a donation for rescue operations, GoWithFund does it all. You can create your project and post your story or a funding campaign.
This profitable agency isn’t just for seekers but also for generous investors who want to make positive change. You can invest in any of their projects, share their equity, and benefit from the revenue.
Additionally, individuals with professional proficiency can also partner with GoWithFund and get much more in return for their participation.
Kickstarter
Like GoWithFund, this is also a global platform that helps to connect innovative projects with potential investors, funders, and supporters.
Kickstarter‘s sole mission is to bring alive ingenious ideologies by fostering art and creative expression.
Launched on April 28, 2009, the agency has backed up millions of people by gathering investments for thousands of projects. In fact, the projects that began here have won Grammys and Oscars for their creativity and art.
GoFundMe
If you want to curate a fund for a social cause, there is no other platform better than GoFundMe. This leading platform of crowdfunding is solely dedicated to helping each other.
It is one common ground for searching for funds for both individuals and all types of profit/non-profit organizations. To sum up, this trusted platform has tools to aid donors in contributing to your fundraisers.
From helping you write gullible stories to fixing bank transfers for the raised donations, GoFundMe assists you everywhere.
There are way more crowdfunding agencies than the ones mentioned here. To find out top-notch crowdfunding websites on the internet currently, take a peek at our article on the top crowdfunding sites.
Things to Consider Before Launching a Crowdfunding Campaign
Here are some things one needs to consider before launching a crowdfunding campaign.
- Define your goals and objectives before endorsing a project
- Always find the platform that supports your project
- Give attention to detail while composing a campaign story
- Make sure to tell a true and gullible story
- It is good to acknowledge your contributors.
- Always deliver what you have committed to your backers
- Use social media sites to promote your campaign.
Empowering Dreams, One Contribution at a Time
Summing up, crowdfunding has revolutionized the route of funding innovative ideas to bring imagination into reality. The benefits of such platforms aren’t just limited to the seeker but also the investor, depending on their type.
While the project creator gets a chance to build up on his/her dreams, the benefactor also leaves with a giant. With every contribution, you will be empowering dreams and making a positive impact.
Let’s keep boosting the pooling of funds through crowdfunding websites.
