What is Crowdfunding? How does it work?

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istockphoto 1295534838 170667a 1
istockphoto 1295534838 170667a 1

Crowdfunding is a way of raising money from a large number of people. In general, crowdfunding successfully involves asking people to give money to your project rather than buying the finished product.

 The process starts when someone creates a project online and sets a goal for how much money they want to raise. People who would like to support that project donate in return for gifts or rewards. If the goal is not reached, no one gets charged anything and all funds go back into the pot.

Using the internet to get small donations from many people to start a business is called

crowdfunding . It can be useful for small businesses and ideas that do not have a big budget but have a lot of potential. Crowdfunding does not have to be complicated, and it does not need to take long.

There are two types of crowdfunding: donation based and equity based. Donation based crowdfunding is when supporters donate money to a project without expecting anything in return, except the sense of pride that they helped to create something.

 Equity based crowdfunding uses small investments from a large number of people. Unlike donation based projects, supporters who donate here have a stake in the business since they could make or lose money depending on how well the project does.

How does crowdfunding work :

1. The project is prepared by the organizer :

The project can be of different types: for example, a film project, new music album, charity event, new gadget or small business startup. The first step is to decide on:

a. The amount needed as capital (the goal), which can be in the range of a few thousand dollars to millions

b. How you will use the money you receive – i.e., how you will spend it

c. What form will the value given by backers take? For example, a donation with no strings attached or an equity stake in the project

2. The organizer enters the project on a crowdfunding website

Most platforms offer an entry form which requires the following:

a. A description of the project, what it is all about, why it is worth backing and how the money will be used

b. The type of reward that backers will receive in return for their money. For example, a copy of the new album or a DVD with behind-the-scenes footage; or if it is a donation, what exactly they are donating towards.

3. The organizer publicizes the project

In order to attract more people, the organizer must give clear instructions on how to participate and promote it widely. Information should be available both online (through social media sites) and offline (through word of mouth). Also, the project must be interesting and attractive enough so that people will want to back it.

4. The online campaign begins

Once the project has been created and posted on a crowdfunding site, it is open for people to donate. The organizer can start the fundraising and keep updating the project’s progress on social media sites such as Facebook and Twitter. Initially, most people will contribute to help them, but after a while, they will also see how much money others have given and may want to do so as well. 

In general, this process happens within days or weeks of the project being created. People who support the project are encouraged to spread the word through social media sites so that other people hear about it and donate towards it.

5. The project reaches its goal

The crowdfunding website will send the organizer a notification when the target has been reached. The organizer must then take action and notify backers who did not contribute on time so that they can receive their reward. If the target is not reached, no one gets charged.

 Those who contributed money to help fund the project will be notified if they have been accepted as backers or if they would like to change their contribution amount or reward choice.

6. The journey ends

After reaching its target, the organizer must decide where the money should go: towards goods and services (expenses) or towards other things that are beneficial for supporters (reward). Depending on the rules of the crowdfunding website, backers are entitled to a share in the finished project. They may also have their contribution refunded if they so choose.

Frequently Asked Questions about Crowdfunding :

1. What is a crowdfunding campaign?

 It is a way of raising money for any kind of project from many people on one platform. It helps an organization (alone or with others) to finance its own goals and objectives by harnessing the power of crowdfunding to make it easier for supporters to donate towards those goals.

2. Who can create a crowdfunding campaign?

Any user with experience in the area of business for which the funds are to be raised, or a team that has already been formed and has a clear idea about the project objectives, can create it on any of the popular platforms with which they have an affiliation.

 Some platforms require you to be an experienced entrepreneur to create a project, while others do not require any specific qualifications. What is important is that it is appropriate for you to be raising capital in this manner and that you are honest while stating your goals and intentions.

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