There are many ways of financing a project or a venture. Many traditional methods of financing exist. Nonetheless, in the recent past a new method of obtaining money to fund projects and investments has come up. If you have a venture that you need to finance but do not have the money required, consider crowdfunding. This kind of funding is achieved by raising monetary contributions from many people, mostly via the internet.
Crowdfunding is considered to be an alternative finance strategy available for you if you do not qualify for funding from the traditional financial systems. Three individuals extensively support this finance system. As the project initiator, you will propose your idea for funding. Groups and people who are willing to support your idea will then do so via a moderating organization that in most cases are known as the “platform.”
The concept of crowdfunding started a long time ago as it is evident with the funding of the Statue of Liberty project. However, over the internet the concept was launched in August 2003. Over the years, this alternative financing method has expanded exponentially. Therefore, you can consider obtaining funds trough the method if you are not eligible to receive funding from the formal lenders and banks.
There are two types of crowdfunding strategies available for you. According to Forbes.com reports, the fundamental strategies include reward-based funding and equity-based funding. In the rewards-based strategy, you can pre-sell a product or a service to launch your business concept. Through this method, you do not incur any debt or sacrifice equity or shares of your company.
In equity-funding, your backers and donators will receive shares of your business mostly in its early stages. These shares are acquired as an exchange for the money they pledged. The success of your business will be determined by your ability to portray your business’s viability successfully.
This kind of crowdfunding has been used for many purposes. Some of the earlier successful businesses that thrived via rewards-based funding include inventions development, motion picture promotions, civic projects, inventions developments and scientific research. Thus, it is evident that you can also thrive using this method provided that you set up a rewards-based campaign to obtain funding.
When you choose to use the rewards-based funding, there are two types of funding under this category for you to make your choice. “Keep-it-All” is the method of financing whereby you can keep all the funds raised in your campaign regardless of whether your financial goals are met or not. In the other type called ‘All-or-Nothing’, you set a fundraising target. In case your goal is not fulfilled, you result in walking away with nothing.
Recent research has shown that the ‘All-or-Nothing strategy of rewards-based crowdfunding is popular for the large projects. As stated by Plumfund, potential investors are more likely to fund the All-or-Nothing campaign. They incline that side because they believe that this is a strategy adopted by serious idea owners. Only individuals who do not wish to jeopardize the quality of their products for deficient funding will take the approach. In the All-or-Nothing strategy, you are required to provide extensive details on your campaign for comprehensive analysis by investors.
If you choose to use this strategy of financing, you will let other investors own a part of your business in exchange for the funding you require to start or expand the venture. Your backers and donators will receive shares of your company mostly in its early stages. These shares are an exchange for the money they pledged.
Debt-based crowdfunding also known as “peer to peer” (P2P) allows you to apply online for free. Your application is verified and reviewed by platform software that also determines your credit risk and interest rate. Your investors will buy into securities that make the loans for you. Through the interest rates on the unsecured loans, the investors make their money. The platform will earn money by collecting a percentage of the loan and your loan’s servicing fee.
Charity and litigation Crowdfunding can also be used fund your business debt-free as cited by Plumfund.