As the word describes itself, Crowdfunding is a financing method which involves funding with modest contributions from a large crowd or group of individuals. This is drastically eradicating the process of seeking a substantial sum from a single investor. Crowdfunding is a new founded way of getting finance for interesting and creative projects. As you can gather the amount from many people, the targeted amount can be achieved fast and easily.
This source of finance has taken the burden off the shoulders of finance seeker. The small amount of loan from many individuals has also reduced the interest amount to be paid to paid back to financer. Another huge benefit is that as the investment is low, the finance seeker can approach anyone for funds like family, friends or professional financer.
In some places like the United States, crowdfunding has some regulative restrictions. A line is drawn on who is allowed to fund in a business like this and how much they can contribute. These regulations protect non-wealthy investors from investing too much of their savings. As any new business has high chances to fail, the principal loss is at high risk.
The Crowdfunding campaign and transactions are generally conducted online through dedicated crowdfunding websites and through social networking websites. The most common source is Facebook, Twitter, IndieGoGo, Kickstarter, 40Billion, Funding4learning, FirstGiving, Spot.us, etc.
Types of Crowdfunding:
1. Rewards Crowdfunding – In this the investor is rewarded with the benefit of product or services that correspond to pledge amount.
2. Donation Crowdfunding - In this type, the crowd gives money because they want to support the cause. They get nothing in return but a satisfaction and happiness of helping other.
3. Equity Crowdfunding - In this, the financer get chance to become part-owner of the company or business for which fund is being raised. The financers will also receive their share of profits in form of a dividend.
4. Debt Crowdfunding – In this type, the fund rising is done but the finance seeker does not sell the shares. The amount is taken as a loan from the crowd and the financers receive the money with interest rate decided at certain time intervals.
Crowdfunding is the biggest asset to the entrepreneurs and businesses which helps in generating much needed revenue.