What is Crowdfunding?

What is Crowdfunding?

Crowdfunding is the practice of raising modest amounts of funds from a large number of people to fund a new business initiative. Crowdfunding takes advantage of the widespread availability of vast networks of people via social media and crowdfunding platforms in order to bring entrepreneurs and investors together, with the potential to boost entrepreneurship by broadening the pool of investors beyond the typical circle of owners, relatives, and venture capitalists. The money gathered through crowdfunding is often used to fund a specific project, make general donations, or rally support for a time-limited initiative....

How does Crowdfunding Work?

1. Acquiring and accumulating funds is important for any business to grow. It may be easier for bigger, more well-known companies to get money from investors or borrow more from their lenders. But there are things that some businesses may face that can stop their growth. This is very true for new and small businesses. Crowdfunding is helpful in these situations....

Types of Crowdfunding

The two most common meanings of the term refer to crowdfunding conducted by startup companies seeking to launch a product or service, as well as by individuals experiencing an emergency. Many people afflicted by a natural disaster, a large medical bill, or another catastrophic incident such as a house fire have gotten financial assistance that they would not have received otherwise, owing to crowdfunding services. However, in recent years, certain crowdfunding sites, such as Patreon and Substack, have broadened the scope of crowdsourcing to provide a means for creative persons, such as painters, writers, singers, and podcasters, to continue their creative activity by obtaining a consistent stream of revenue. There are four major types of crowdfunding: contribution, reward, equity, and debt crowdfunding....

Advantages of Crowdfunding

1. Access to Capital: Crowdfunding allows individuals to obtain investment without the involvement of traditional financial institutions or venture capitalists. This is especially useful for startups and small enterprises that may struggle to obtain capital through traditional channels....

Disadvantages of Crowdfunding

1. Massive Competition: Crowdfunding platforms have grown more crowded, making it difficult to stand out amongst the thousands of campaigns released each day. This high degree of competition can make it harder to recruit investors and meet financial targets....

Examples of Crowdfunding

Many of the goods and businesses crowdfunded on Kickstarter became extremely successful and profitable ventures. For example, Oculus VR, an American firm that specializes in virtual reality technology and software, received funding through the site. Palmer Luckey, the company’s founder, started a Kickstarter campaign in 2012 to generate funds for developers to use virtual reality headgear developed for video gaming. The campaign raised $2.4 million, ten times its initial goal of $250,000. Meta (META) acquired Oculus VR in March 2014 for $2.3 billion in cash and stock. M3D, a company formed by two friends that manufacture small 3D printers, is another example of a firm that climbed to success thanks to Kickstarter crowdfunding efforts. In 2014, David Jones and Michael Armani raised $3.4 million for their Micro 3D printer through crowdfunding. The compact 3D printer, which includes a choice of long-lasting 3D inks, is currently available at Staples, Amazon (AMZN), Brookstone, and other retailers. In April 2019, Critical Role, a monthly live-streamed tabletop roleplaying game starring a collection of notable voice actors, earned $4.7 million in just 24 hours for its next animated special, “The Legend of Vox Machina.” No other Kickstarter campaign in 2019 raised as much money over the course of 30 to 60 days....

Popular Crowdfunding Websites

Crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe draw hundreds of thousands of people looking to start or support the next great thing....

Frequently Asked Questions (FAQs)

1. What is crowdfunding?...