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What is crowdfunding and how to get money for realizing your idea

What is crowdfunding and how to get money for  realizing your idea

Crowdfunding is a mass collection of funds for any purpose: it can be helping victims of natural disasters, conducting political campaigns or recording a music album. Fundraising is practiced to start a business, and this is often used by those who want to launch a startup.

In any case, crowdfunding is a story of bringing people together and their capabilities, as well as a common contribution to achieve a goal. A significant advantage of this method is that it simplifies the procedure for receiving funds. There is no longer any need to enter into relationships with investors, which tend to be complex and bureaucratic. Let’s consider how to raise money for a project through crowdfunding.

How crowdfunding works

The essence of crowdfunding is quite simple: the one who is looking for support tells about his or her project on special portals, and those people who considered it interesting decide to support (finance) the project.

Generally speaking, there are two ways to launch crowdfunding:

  1. investment. In this case people who contributed funds later become co-founders and receive dividends from the project.
  2. Socially oriented. In this case, investments are made on a voluntary basis and investors do not receive any profit from the implementation of the idea.

In any case, the author’s task is to tell as much as possible about his or her idea in order to interest the investor (backer) and make him/her want to join the project. The peculiarities of crowdfunding are the following: if the project does not collect the required amount of funds, the deposits are returned to investors.

It is a fairly correct approach that does not allow dishonest authors to simply ask for money and spend it on the goals they need, not related to the launch.

Crowdfunding scheme

The types of crowdfunding

There are several ways of investment crowdfunding :

  • Equity Crowdfunding

    The way that companies use when they sell their share in the project to the interested ones. This crowdfunding mechanism allows everyone to win: both the business, which receives the funds it needs, and the investor who has direct financial interest.

  • Debt-based Crowdfunding – the use of debt capital.

    Here, investor after a certain amount of time, receive interests on the invested funds

  • Reward Crowdfunding – reward financing.

In order to keep the investor interested, he is offered to receive a valuable prize or gift.

Thus, the person who attracts investors should try to interest the one who will provide support in the future. Various crowdfunding technologies help to “thank” the investor, not transferring part of the business to him, but using other methods.

Crowdfunding: advantages and disadvantages

Crowdfunding seems like a convenient way to get the funds you want. However, it also has both positive and negative sides. Consider both.

The benefits of crowdfunding include:

  • Such activities are legally regulated. This gives the participants a sense of security.
  • Crowdfunding goals can be anything.
  • The authors of the projects can answer the questions of investors directly.
  • There is feedback from the audience.
  • However, there are also disadvantages, for example:
  • The investor bears the risks.
  • Cases of fraud are not excluded.
  • Before crowdfunding can raise funds, the idea can be stolen.
  • The platform may close, and then your profits and your income will be lost.
  • The project may not collect the entire required amount.
  • You will have to pay a commission for placing on the platform and withdrawing the earned funds.

Do not overestimate the possibilities of crowdfunding: it means that entering the platform guarantees that you will not need to invest your own funds.

Crowdfunding revenue regional statistics

How to organize crowdfunding. Useful Tips

Coming to the crowdfunding platform, almost all participants are in similar conditions. However, there are rules that can help you become more successful and slightly increase the chances of a positive outcome of the case.

The idea that is being promoted must be creative or have social significance.

The author must make sure that his strategy is complete, understandable, and also includes a business plan. The more specific the idea, the more likely it will be believed in.

A way of raising funds where the investor gets nothing in return is certainly far less likely to be successful than one where a reward is provided.

If there is a voluminous task and a lot of funds are required, then it is better to break it down into parts. Not only will this make it easier for the author himself, but investors will see the previous steps completed successfully and respond more readily to the call for participation.

Before starting crowdfunding and raising money, you need to take time and choose a site, as well as seriously prepare to demonstrate your idea.

Authors will find it useful to set a deadline for the collection with some margin, as otherwise they may not meet the allotted time.

Numbers and pictures always work well in project presentations. They will help make it clear and informative.

These simple tips will increase your chances of getting the desired result.

Examples of projects

Approaching the issue objectively, we note that only a few of all projects are successful. But it also happened that it was possible to get a stunning start with the help of crowdfunding.

For example, the online game Star Citizen set a goal to collect $ 500 thousand, and as a result, $ 88 million came out. The project includes the simulation of resource extraction, military operations, trade and everything that the user needs. Another game, Pillars of Eternity, also exceeded the box office. Instead of the planned $ 1 million, she raised as much as $ 4 million.

As mentioned above, startups are often looking for money on such platforms. And if the idea is interesting, it will be very warmly received. For example, the GeoOrbital project, which was looking for funds to develop an electric wheel for a bicycle, raised twice as much as it needed.

Elio Motors, a three-wheeled vehicle startup, raised $ 21 million. The project has successfully started and annually produces more than 60 thousand cars.

It should be mentioned that crowdfunding is not only about business. It, in particular, is about the kindness and unification of people. For example, with the help of the site, a girl who traveled around Europe raised funds for car repairings. The mechanics asked for more than she could pay, and she had to try crowdfunding.

Another girl moved to Sweden, and for the first time she did not have the funds to pay utility bills. Users were sympathetic to the problem and raised money.

Popular crowdfunding platforms

A crowdfunding platform is a place where you can present your project and meet those who will finance it. The largest are:

Kickstarter is the largest platform in the world, in fact, it was the birthplace of crowdfunding and here it turned out to tell the public about it. Kickstarter supports a variety of projects, not only in business, but also social ones. Simple registration and convenient options attract users.

Kickstarter by the numbers

Indiegogo was designed as a fundraising place for launching indie games. Now you can find a variety of projects there, there are often cases when students collect money for education, and newlyweds – in order to have a wedding.

Rockethub is a platform for charitable projects.

Quirky – those who collect funds to create various inventions come here. A distinctive feature is that the collection is carried out only on a charitable basis.

Crowdfunder is a platform for crowdinvesting. Here, those who invest in the project can then demand a reward.

AngelList. The developers of the site are from Silicon Valley. A distinctive feature is that those who are looking for an amount of at least $ 1,000 come here.

Planet is a Russian platform created by the founders of the Bi-2 group. It works with creative, educational and charitable initiatives.

“Boomstarter” – game and application developers are looking for funds here. In case of fundraising, the one who finances the project receives a gift.

Alfa-Stream is a service from Alfa-Bank, which works with business projects from 50 thousand rubles.

Thus, crowdfunding is a relatively new phenomenon that opens up wide opportunities for active and proactive people. And for those who are ready to help, it is one more way to do good.

Author:My Profit

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