What is crowdfunding and how does it work?

crowdfunding

Current and potential business entrepreneurs use crowdfunding as a way to raise funds for their current or future businesses.  

What is crowdfunding?

Sites such as Kickstarter, Indiegogo and GoFundMe have made crowdfunding easier and more popular. Crowdfundng can be as simple as giving $10 to a company on Kickstarter or businesses could receive a $10,000 investment from a friend of a friend who heard about your idea. 

Crowdfunding is ultimately any money that a company receives from individuals who want to help them gain capital for a current or future business. This money is usually in small amounts and is from many individuals but this is not always the case. Some individuals use the companies listed above or ask their friends and family to invest in their idea. 

What are the benefits of investing? 

The benefits of crowdfunding will depend on the company you invest in, the amount of money you invest and the type of investment. Here are the four forms of crowdfunding. 

  • Donation: In this form of crowdfunding the investors do not receive any return except for seeing the company succeed. Individuals give a donation to a company and do not receive anything in return. 
  • Debt: This form of crowdfunding is in the form of a loan. The funds a company receives must be repaid by a certain date with interest. 
  • Rewards: Donors receive some kind of incentive for their donation. The incentive can vary depending on the size of their donation. This could be a free piece of clothing or a discount for their products. 
  • Equity: Individuals who give a company funds will receive shares in a company in return for their investment. The amount of shares will correlate with the amount of money invested. 

The type of crowdfunding a company uses will depend on many factors such as the product, the amount of capital needed etc. Additionally the type of crowdfunding individuals use to invest in businesses will vary depending on the product, the amount of money they want to invest\give to an idea or organization. 

Individuals who want to learn more about crowdfunding can increase their knowledge by participating in a FUNIBER sponsored project: the Financen_Lab program. This program strives to improve financial literacy in current and future entrepreneurs. 

Sources:

Crowdfunding

What is crowdfunding?

What Is Crowdfunding?

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Project Information

Project reference number: 2020-1-ES01-KA226-HE-095810
Project acronym: FINANCEn_LAB
Project full title: Digital Simulator for Entrepreneurial Finance
Starting date: 2021-03-01
Duration: 24 months

This project has received funding from Erasmus+, Call 2020 Round 1 KA2 - Cooperation for innovation and the exchange of good practices, KA226 - Partnerships for Digital Education Readiness.

National Agency of the Applicant Organisation: ES01 Servicio Español para la Internacionalización de la Educación (SEPIE)

With the financial support of:
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