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Management,  Start-Ups

What is Crowdfunding?

“I think that crowdfunding has become such a powerful tool to tell stories that might not find financing otherwise – like a dark comedy about infidelity, for example”

By Kit Williamson.

Until relatively recently, any entrepreneur or person who wanted to undertake a personal or business project forward and did not have the money to do so, opted for a few possibilities: ask for a grant, a loan to a bank or help from relatives and friends. However, the arrival of the Internet has opened the possibility to new alternatives such as crowdfunding.

Crowdfunding is a network of collective financing, usually online, that through donations, they manage to finance a certain project in exchange for rewards, participations in an altruistic way.

The projects for which crowdfunding is used as a source of funding can be very varied: from musical or artistic projects to political campaigns, financing debts, creating schools or starting businesses, amongst others.

Resultado de imagen de crowdfunding

Origins of crowdfunding

Regarding the origin of crowdfunding, we can find it in donations. The first crowdfunding action is officially attributed to the British rock group Marillon, made in 1997 in order to finance its US tour.

Open Source projects by developers are among the first expressions of crowfunding.

Crowdfunding models

Currently, depending on the type of reward that participants receive in exchange for their participation in the project, there are five models of crowdfunding:

  1. Donations: Those who make contributions do not expect benefits in return
  2. Rewards: Those who make contributions will receive a reward for their contribution.
  3. Stock-options: Those who receive shares of it.
  4. Loans or crowdlending: This is a mass financing, through loans from a company in exchange for an interest rate for the money borrowed.
  5. Royalties: When it is invested in a certain project or company and it is hoped to obtain a part of the benefits.

The operation of crowdfunding depends on the type of crowdfunding that we have selected as a form of financing. However, these are the main phases:

The entrepreneur sends his project, or his idea of ​​a business, to a crowdfunding platform, which is usually online, to be a candidate for financing. So that your project can be valued, it indicates: a description of it, how much you need, how much time you have to collect what you need, type of crowdfunding to choose from, etc.

Evaluation of the project: the community or the platform itself values ​​the interest of the project.

The project is published on the platform for the time indicated in the application. It is the period of time that people have to invest.

During the time that is public, is promoted to the maximum to get financing.
Project closure When the deadline expires, the project is closed and it is verified how much funding has been achieved.

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