Meaning of Crowdfunding

Once upon a time the credit cards, family, bank loans and personal savings were the most popular ways to fund business startups. An entrepreneur had the options of pitching to Venture Capital firms and Angel Investors for funding. However, the scenario is changing as businessmen are opting different types of options and Crowdfunding is one of them. Many people are still unfamiliar with the concept of Crowdfunding.

Crowdfunding is nothing but raising money from large groups. The perfect example of crowdfunding is Kickstarter. What you need to do is you have to create your business idea and upload it to the website mentioning your financial goals. There might be people who could come forward and give money for the fulfilment of your goals.

Crowdfunding is of two types like

The traditional way of crowdfunding is receiving rewards. In this system, in return for their investment, the investors would get a reward. Suppose if you have given some money to an entrepreneur who wanted to launch a new board game, and since you gave money so on a thankful note, he might send you the board game. It might sound very easy, but the people who give money and get rewards are not the technical investors in the business.  In this case, if the business makes the profit, the person who had invested money in your business, would not get any share of the profit.

A newer method of crowdfunding is equity crowdfunding. As per the JOBS Act, the companies can collect up to $1 million per year through the internet and thus whoever contributes can become the company shareholder.

There has been a great change in the financial woes of the entrepreneurs with crowdfunding.

Presently, the way the companies raise money has changed and as now it requires a new set of skills and that was not required in the past. In crowdfunding, you should be able to present your business well online and hence the role of the startups’ changes with crowdfunding. Earlier, the presentation was everything, however, the scenario has changed a lot in the present condition.

In crowdfunding, you need to find similar minded people who could give a little bit of money to the business. Social media also plays a great role in finding investors.

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