Crowdfunding is a way for people to support companies and projects they are interested in. Crowdfunding has become a very popular way to get funding for a new project or for a new start-up-company to get funding for the early stages of their company.
The first of the two primary types of crowdfunding is the reward-based crowdfunding. In the reward-based crowdfunding companies seek for donations from people interested in their product or project in return for special rewards. Kickstarter is the leading platform for reward-based crowdfunding. To give an example a gaming company could give extra items that are usable in the game or the soundtrack of the game as a reward for backing their game project. The value of the rewards depend on the amount that was donated. In Kickstarters model, the company that seeks the funding must set a monetary goal and no money is transferred until the goal has been reached. On Kickstarter, if the goal is not reached, the company doesn’t get any money. On other platforms, Indiegogo for example, the company can get the money even if they don’t reach their goal.
The equity-based crowdfunding means that the supporter donates to a company that is usually at its very early stages. The backer receives unlisted shares of a company in return of the donation. This has been very popular among new start-up-companies in the last few years. Credit- or lending-based crowdfunding basically means that one individual lends money to another individual instead of a bank lending the money. Interest rates and reimbursement periods are included, just without a bank in the middle.
Crowdfunding is a great, modern way to gather funds for projects. It is a very effective way to source potential customers and to grow an audience. A successful crowdfunding creates fuzz around the product and the company, which helps the product to be more successful. It is also a great way to explore if there is interest or need for a certain type of product or service.
Another excellent benefit of crowdfunding is that it helps the economy. It helps companies to gain revenue, which is desperately needed in the present state of economy. Crowdfunding also encourages companies to innovate and to continue creating new products. It also reduces the risks of launching new products of starting a new company. Starting a company is very risky, but with crowdfunding it is possible to get a new business going without massive debts.
I think crowdfunding is an excellent way to do modern business and with the laws hopefully changing so it is legal all over the world, it would become even more popular. Crowdfunding is great for everyone: companies, customers, individuals and the economy.