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:
- Debt Crowdfunding - investors recieve their money back with an interest rate.
- 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.
- Equity Crowdfunding - investors invest for an exchange in equity. Shares or small stakes are exchanged for the investment.
- 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
- 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