Crowdfunding – basic information
When you have 34 billion US dollars of worth, then you are a global industry. Crowdfunding is a relatively new trend in the world of finance, but it has a long history and deep roots. It is a process of funding a business endeavor or project by raising money from a group of people, usually a large group. It is often described as a form of alternative finance or crowdsourcing.
When internet took over global communication, it allowed many industries to rely on the almost limitless potential of quick and efficient contact and distribution of information. Crowdfunding practices almost exclusively rely on the internet, but there are other ways to execute it: mail-order subscriptions or benefit events, for example.
The people involved in the crowdfunding process are the project initiator, supporters of the idea and the platform (a moderating organization) to connect the two parties and bring the idea to life. There are many applications of crowdfunding, from artistic projects to social entrepreneurship and from paying medical expenses t o accumulating travel funds. One of the best ways to get to know yourself with crowdfunding is the Fincrowd App, so feel free to visit their web site.
Types of crowdfunding
There are two main types of crowdfunding: reward-based and equity based. Furthermore, there are several other specific types like debt-based crowdfunding; software value tokens litigation crowdfunding and donation-based crowdfunding.
Reward-based crowdfunding has a lot of applications, from movie promotions to scientific research, free software development, and different civic projects. Experts also call it non-equity crowdfunding. This type of funding does not rely on location because the distance between the project initiator and the supporters can be vast. Early fundraising usually revolves around friends and family. After the project reaches a certain size, the so-called „herding behavior“ kicks in and funding increases when the project nears its end. It is important to notice that this funding system can sometimes lead the investors into high hopes, but without a guarantee of any returns.
Equity-based crowdfunding relies on a collective effort from a range of individuals which supports an idea which originates from certain people or organizations. The way to support the idea is providing financial in the form of equity. This type differs from the reward-based system because the creator of the idea or the project has to set up a company along with producing a product. This system also includes securities which offer a potential return on the investment.