What is crowdfunding? – A guide for beginners to raise money effectively

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What is crowdfunding?

Crowdfunding is a way to raise funds in the form of small donations from several sources such as family, friends, relatives, colleagues, or even random online donors. One can run crowdfunding campaigns for projects as well as causes. In the modern era, crowdfunding campaigns run on the internet, and that’s why sharing via social platforms can help you reach a broader audience base who are interested in donating. Nonprofits make use of crowdfunding quite often, and they usually refer to it as “online fundraising”. 

Here are some exciting stats about crowdfunding that will shed some light on how popular this method is:

 

  • In 2018, the North American platforms accumulated approximately US$ 62 billion. China raised around US$ 215 billion, and this amount was more than the funds raised by the rest of the countries combined. [Statista]

  • The global crowdfunding market size was projected to have approximately US$ 89 billion incremental growth between 2018 to 2022. [Businesswire]

  • The global crowdfunding industry is expected to grow to approximately US$ 300 billion by 2030. [Entrepreneur.com]

How does crowdfunding work? 

As you are now familiar with the term crowdfunding, let’s have a glance at how it works. 

Crowdfunding is a way that can be used to accumulate money for various causes, individuals, projects, or even organizations. For example, some startups may need funds for their business idea, and they may entirely rely on crowdfunding for gathering money. Nonprofit organizations might run these campaigns to support a particular cause. Individuals may try to raise money via crowdfunding to overcome personal financial crises.  

 

Many individuals, nonprofits, startups, and organizations use dedicated crowdfunding platforms for launching their digital fundraising campaigns. There are various platforms, such as Fundingcubes, Fundly, etc., that make the whole process easy and quick. These crowdfunding campaigns make money by collecting a fixed percentage of whatever a single campaign/project raises. 

 

The entire process of running the campaign may differ a bit on every platform, but the general rule remains the same. You simply create an account on the platform and enter essential details about the project, and your story, and that’s it. The existing donors of that platform may be interested in helping you out, but we would recommend making efforts and bringing more traffic to the campaign via social sharing. You can also reach out to your family and friends via direct messages.

 

What are the benefits of crowdfunding? 

 

#1 It’s highly efficient

Crowdfunding is much more efficient in comparison to other traditional forms of fundraising. Let’s say your startup needs funds for your project, then attracting investors or applying for a loan can be a big challenge. If you know the right crowdfunding platform for your project type, you can easily raise funds in less time. All you need is the right story to get started. 

 

#2 It opens up exceptional opportunities to reach more people

Online crowdfunding offers vast opportunities for you to reach out to a massive number of people and groups. You can make use of social platforms, direct messages, and other forms of digital marketing to attract a broader audience base to your campaigns.

 

#3 You don’t have to wait to receive your funds 

With crowdfunding, you receive your funds quickly. The crowdfunding platforms are transparent in their payment policies. Some crowdfunding platforms empower you to transfer funds anytime. It is also possible that some might keep a threshold limit and make you wait; it all depends on their policy. We would recommend reading all these payment-related details in advance to avoid any confusion.

 

#4 No need to directly ask for financial help

Crowdfunding enables you to share your campaigns with your network, and if they want to support you, they would simply donate by visiting your campaign page. You don’t have to ask them in person for financial help.

 

#5 Crowdfunding is free

There is no fee for running your crowdfunding platforms. You can launch your campaign anytime, from anywhere. If anything there is to pay, it is the commission that will be charged on your raised funds. Nothing is charged from you if your campaign doesn’t raise any money. 

 

What are the different types of crowdfunding campaigns?

 

There are mainly three types of crowdfunding campaigns:

 

#1 Donation-based

It is the most popular form out of all crowdfunding campaigns. As the name suggests, it is in the form of donations by the people who support and care for a cause or project. The donors do not receive anything in return when supporting through donation-based crowdfunding. Even if you are raising money online for your business idea, you are not obligated to return donors anything for their financial help. 

 

#2 Rewards-based 

It is another common type of crowdfunding which means the donors supporting a cause or project are provided with several kinds of rewards. It is a way of showing your appreciation for their contribution. These rewards can be in the form of items like t-shirts, jerseys, notebooks, caps, product samples, etc. If you are interested in running such crowdfunding campaigns, then you can use the platforms like Indiegogo and Kickstarter.

 

#3 Equity-based 

Equity-based crowdfunding is also known as investment crowdfunding, in which the organizer receives money from individuals or groups that are looking to invest. The investors or contributors become the shareholders in the business as they will receive a small portion of the equity in return.

 

What is the most suitable type of crowdfunding for you? 

 

Crowdfunding is not a new concept, but the traditional methods of crowdfunding don’t provide good results, whereas digital campaigns to raise money online are much more beneficial. 

 

However, it is essential to choose the most effective method that suits your goals. If your goal is to raise funds for charity, then donation-based crowdfunding is ideal for you. 

 

On the other hand, reward-based crowdfunding is a reliable choice if you have a creative project and you aim to share it with the backers, then you can send them samples or souvenirs in return. 

 

Equity-based crowdfunding is for businesses, primarily startups that are looking to attract shareholders when raising money. 

All these types of crowdfunding campaigns are used for different goals, so we would recommend going through detailed information on them. You should conduct proper research before jumping to any conclusion. 

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