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Crowdfunding, what is it? what are the advantages and disadvantages?

Crowdfunding, what is it? what are the advantages and disadvantages?

What is it?

Funding of projects or ventures, debts included – by the raising of money from many people. Each person contributes a small amount (usually) via internet platforms.

There are three types of crowdfunding to be aware of:

  1. Debt Crowdfunding - investors recieve their money back with an interest rate.
  2.  Donantion Crowdfunding - investors genuinely believe in a cause so they invest for this reason. Nothing is expected back - it is just out of the moral ethical intention.
  3. Equity Crowdfunding - investors invest for an exchange in equity. Shares or small stakes are exchanged for the investment. 

Advantages

  • Quick way to raise finance, without upfront fees
  • Through pitching your business or project through the online platform, marketing and media attention can be received
  • Gain an idea of the feasibility of the business or idea – only if others see it viable and believe the potential, will they crowdfund it
  • Feedback can be received at the same time

Disadvantages

  • You may spend time applying to the plaftorms and not result in any finance being raised
  • Dependent on interest in the business or idea, hence much activity may be required before asking for this source of finance, to create an interest
  • Failed projects could harm your reputation
  • Incorrect rewards and returns can mean too much of the business is given away

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