Crowd Funding- A Collective Way of Financing

Crowdfunding is the booming way of financing any business venture by utilizing small sums of money from a large number of people. This method uses the spread-out network of people on social media and also through crowdfunding websites to unite the entrepreneurs and investors. Moreover, with the motive of enhancing entrepreneurship and investor pool expansion.     

Key Features of Crowdfunding     

• Crowdfunding provides the investors with a pool of project choices and investment options for as low as $10.
• Crowdfunding platforms utilize a certain percentage of the collected funds to attain revenue.

What are the Types of Crowd Funding?

Equity-Based

In equity-based crowdfunding, the investors get to be the part-owner of the venture by giving capital in exchange for the equity shares. The equity shareholders get some financial return which is on the basis of their proportionate contribution. And this stands out to be one of the most popular kinds of crowdfunding.

Reward-Based

This type of crowdfunding involves raising funds in exchange for a reward which is usually a product or service from the business in which the funds are invested.

Donation-Based

Donation-based funding is about asking masses of people to contribute or donate a small sum for a project or business venture without expecting any reward or shares.

Working of Crowdfunding

For crowdfunding, people use vast social networks, crowdfunding platforms, and crowdfunding websites to generate funds by displaying the story, motive, objectives of the business venture or the project. In India, equity-based crowdfunding does not have a legal stance, but peer-to-peer crowdfunding is kept in check by the RBI.

Advantages of Crowdfunding

• A swift way to raise funds without having to pay any fees.
• Attracts media attention and great marketing results because of the display of business ventures on social media platforms.
• A way to get the right guidance and expert advice as the businesses are open to a public audience.
• You can get to know the reaction of the public, which will help in the betterment of the project or business.
• Tracking business progress will be easy for investors.

Disadvantages of Crowd Funding

• This will not be as easy as the traditional ways of fundraising.
• If the funding target is not achieved, you might have to return the promised capital to the investors.
• Failed attempts can harm your business’ reputation.
• If the project does not have a patent or copyright, it is at the risk of piracy.

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