Crowdfunding Essays - Crowdfunding, Fundraising,

Crowdfunding 1. What is crowdfunding? Crowdfunding is an alternative method of raising money to finance different kind of purposes. The concept of crowdfunding is to gather a large group of people(the crowd) who fund small amounts of money to eventually reach the total amount desirable for financing the purpose. Crowdfunding is used by all kind of people and groups like entrepreneurs, charities, companies and privates. The different purposes wherefore crowdfunding can be used are from raising money to finance a new car or a vacation, making a movie, to the startup of a company or developing an innovative idea. The purpose can be everything, just as long people are willing to invest into the idea. The difference between crowdfunding and traditional fund raising is that crowdfunding needs to attract a large group of people who all donate or invest a (small) amount of money to eventually reach the total amount needed. A traditional finance is mostly done by attracting one or two organizations or businesses who invest the total amount of money needed, it can also be a loan from a bank or other financing institution. I think you can see crowdfunding as getting money from a bank where the bank as intermediate is ruled out. Normally a bank collects money from a lot of different people(their customers savings) and then they loan the money to others who need it. The bank in this role takes all the risk and chooses what to finance and what not. When the bank is ruled out you get crowdfunding, the difference is that you need to attract the people who are willing to invest in your purpose. the investors decide what purpose they want to finance and take the risk themselves so it can be ha rd to get enough people to fund a project. 2. Crowdfunding models There are three different crowdfunding models which can be used: Reward based Crowdfunding model Equity based Crowdfunding model Microfinance lending model When using reward based crowdfunding, people who make an investment are rewarded in some way, normally there are predefined rewards for different amounts funded. An example of this is a crowdfunding project where money is being raised for making a special hamburger sauce. If people donate more than 5dollar they will receive a sticker of the company. If they donate more than 10dollar they get a bottle of the sauce, more than 35dollar they get a t-shirt and a bottle of the sauce and so on. Mostly it's the more someone funds the better the reward is. People who fund a company which raises money using equity based crowdfunding, get a share in the business in exchange for the money invested. This model is used by startup companies as by existing companies who want to expand and need money. An example of this model is the company called Financial Fairytales who offers 20% equity to people who invest in their company for expanding their business in the UK and abroad. People who invest money in a microfinance lending model get a financial return and/or interest at a future date in exchange for the fund they made. For example: A person needs money to finance his wedding and started a crowdfunding at a platform with the microfinance model. When someone chooses to fund this person, the reward is to get the funded money back within 3years with an interest of 8,20% 3. Crowdfunding platforms: When the product, business or whatever you are hoping people want to invest in is clear and the crowdfunding model as well, you can start looking at crowdfunding platforms. The concept of an crowdfunding platform is that you can put your project on their website to get potential investors who surf on their sites to come in contact with your project. To choose the right platform you will have to consider a few things. First of all the crowdfunding websites also want to earn money. Crowdfunding platforms often ask for a percentage of the raised funds. Some platforms provide different kinds of percentages with different kind of crowdfunding. This also depends if raising the money is successful or not. There also has to be paid a percentage for processing the money. This can be credit card processing or paypal costs for example.