Crowdfunding is a way to raise money from many people, thanks to the power of the Internet. Crowdfunding websites such as Kickstarter are platforms you can use to advertise the idea you’re hoping to fund and to receive donations.
A typical crowdfunding campaign looks something like this:
Although crowdfunding can refer to almost any online fund-raising strategy, there are some important differences among the main types:
Whether you’re hoping to launch a campaign or looking for a worthy cause to contribute to, the right type for you may depend on what (if anything) you’re hoping to receive in return.
Crowdfunding can lead to amazing, viral success stories. But as with almost any financial transaction, it still comes with risks. Here are the main trade-offs:
|For fund-raisers||Simple and easy;
Potential to reach a wide audience
|At first, you’re asking for money from people you know (awkward);
No guarantee you’ll reach your goal
|For donors/investors||Help a real human instead of a faceless organization;
Get in on the ground floor of something cool
|Not much protection; scams can happen;
Donations often not tax-deductible
“Small opportunities are often the beginning of great enterprises.“
Crowdfunding can be a potential lifesaver for people or families dealing with a financial crisis. In these cases, crowdfunding might yield more money (sometimes a lot more) than a yard sale or church collection.
For an entrepreneur, it offers an alternative (or complement) to getting a traditional bank loan or courting investors. The appeal for startups and other businesses can include:
Whether you’re a donor or a fund-raiser, be sure to go in with your eyes open. Keep in mind:
Crowdfunding is a way for people or businesses to raise money online from donors around the world. There are four types—donations, loans, equity, and rewards—each of which has its own pros and cons. Some businesses prefer crowdfunding over traditional loans or investments because it can make raising money easier, may pose less risk, and could give the company more room to innovate.