Crowdfunding is a fundraising method that allows individuals and businesses to raise money for projects or ventures by collecting small contributions from many people, typically through online platforms.
It can be defined as a technology-enabled financial service that utilizes various online crowdfunding platforms.
It is used to gather funds from a community of individuals rather than relying on traditional funding sources like banks or venture capitalists.
Diverse Models and Varied Rewards for Contributors
Crowdfunding encompasses a range of approaches for raising funds, and the specific crowdfunding model determines the benefits or rewards contributors receive in return for their investments. These rewards can be tangible or intangible.
In investment crowdfunding, there are two subcategories:
- Debt-based crowdfunding: Funders provide loans to the project or business and expect repayment with interest over time.
- Equity-based crowdfunding: Funders invest in the project or business in exchange for shares or equity, aiming to receive financial returns if the venture succeeds.
In non-investment crowdfunding, there are two subcategories:
- Reward-based crowdfunding: Funders contribute money to a project and receive non-monetary rewards, such as products, services, or exclusive experiences, as a token of appreciation.
- Donation-based crowdfunding: Funders donate money to support charitable causes or projects without expecting any financial returns.
Key Elements of Crowdfunding
Since crowdfunding encompasses various models, the definitions can be somewhat limited.
However, the common elements of crowdfunding include the involvement of a large number of funders, the use of online platforms to connect fundraisers with contributors, and an open call for participation in the funding process.
Crowdfunding has become a popular method for individuals, entrepreneurs, and organizations to access capital, engage with a community of supporters, and bring their ideas to life.