How Does Crowdfunding Work?
What do you do if you have a business idea and don’t have money. You try to get some. You start by applying for a loan. If you can’t get a loan maybe try to save up for it. But if those options don’t work, it might be time to start think about crowdfunding the money.
Crowdfunding– raising capital from investors by simply asking for small donations from people like you and me
How does it work
Crowdfunding allows people to raise hundred, thousands, or even millions of dollars in capital for their business ideas. People pitch their ideas to regular people on crowdfunding sites; explaining what they need, what they’re trying to do and how they’ll do it. Regular people then decide if they want to donate some money to the business or business idea. People use some crowdfunding sites such as Kickstarter and Indiegogo.
Types of Crowdfunding
- Reward-Based Crowdfunding – you provide funds, and get a reward in return
- Loan-based crowdfunding – you provide funds and get the money back as well as interest
- Investment-based crowdfunding – you provide money and get a stake in the company in return.
Why would the investors willing just donate money?
Often times people will donate to something they think is very meaningful to them. Crowdfunding is also usually reward-based. So, sometimes investors will be guaranteed a gift for donating like a sample of the product or a stake into the company or an invitation to a release party. It all depends. This is also a great way to invest your money into something that will make you money. If it works out you get some extra cash. If not then you lose the money but it’s worth a shot to invest in a company that you personally think can be successful.