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  • Category: Investments

    What is crowdfunding and how it works?


    Do you have a query about crowdfunding? Searching for detailed information about this platform to gather funds and launch or continue an existing businesss? On this page our experts have responded to your query.

    I wanted to know more about how crowdfunding works. Is it true we have start campaign and share the our project with family and friends and should raise funds by ourselves.If that is true why one should depend on crowdfunding? Or else will we get donors in these platforms so that one can get funds from them?
    Also please explain me more about crowdfunding.
    Please explain me about reward based, loan based and other types of crowdfunding.
    What happens when one person fails to pay rewards back to person who donated fund?
  • Answers

    5 Answers found.
  • Crowdfunding is a way for fundraising by which an individual can raise fund for any project or any cause. It is a very effective method. Crowdfunding is done online through social media and websites etc. There may be several reasons for which money is raised through crowdfunding. Some of them are medical expenses, creative projects, non-profit projects etc. In the crowdfunding campaigns small donations are received from large number of supporters by sharing through social media. People can also donate through online mode like online transactions, credit/debit cards and other options.

    In crowdfunding a campaign is started by sharing the project details or sharing the story like the need of fund and expense plans etc. and sharing through social media and then sharing updates and give the acknowledgements to the supporters.

    Crowdfunding is of following type: Donation based crowdfunding, reward based crowdfunding, equity crowdfunding and peer-to-peer lending etc.
    1. Donation based crowdfunding : In this type of crowdfunding, large numbers of donors contribute small amount individually. Donors receive a thankyou note in return.

    2. Reward Based Crowdfunding: It is similar to donation based crowdfunding the difference is that in this type, the donor receive some kind of reward in return to his investment. Here rewards are usually very small, for example T-shirts, etc. so there will not be any question of inability to give a reward to a donor.

    3. Equity crowdfunding: In this crowdfunding, investor invest his money in an unlisted company and buy shares and become a partial share holder. But there is always a higher risk being scammed.

    4. Peer-to-peer lending: It is also called as P2P or crowd lending. In this type of crowdfunding, borrowers directly lend money from the investors instead of financial institutions.

  • Crowdfunding is nothing but many people contributing for a common cause in a small portion rather than having one or two promoters. When funds are coming from a crowd, that is known as crowdfunding. This crowdfunding can be for any new venture or project. Generally, this crowd fundraising will happen through the internet and there are some websites dedicated to promoting these activities. These collections will happen in a set time frame and the money aimed at will also be disclosed.

    There are 4 types of crowdfundings based on the activity that is proposed to do with this fund.
    1. Donation: The person who is giving this donation may not expect anything in return. Many NGOs raise funds for their activities through this crowdfunding only.
    2. Debt: This is like giving a loan to a known person. The company or the organisation collecting this fund should return the money with the accepted rate of interest within the accepted time frame.
    3. Rewards: The investor will get some rewards from the company towards the fund he has given. This will be in proportion to the money he has invested.
    4. Equity: This will allow the business owner to give equity in proportion to the fund money given by the individual. The investor will receive shares in the business
    It is like investing in a business. There are chances you may get very good returns for your investment. The rewards you may receive may be of very high value. At the same time, there are some risks as mentioned

    1. Like any share business, you may get returns or you may lose your investment also.
    2. The company collected this money may use this money for some other purpose than what was proposed
    3. There is a risk of failure, fraud and doubtful returns.
    4. They are vulnerable to hacker attacks and mediocre investments.

    drrao
    always confident

  • The term crowdfunding refers to a practice where money is taken from a group of people to complete a project. Here, people who invest their money always know where and why they invest their money. This is only for one particular reason. This is an innovative idea for a startup or company, or for something that requires funding. And with the increased publicity of the internet.

    It has mainly three important parts. Which are -
    Project Initiator,
    Supporters,
    Platform.
    The job of the Project Initiator is to propose, that is, let people know about their project.
    Supporters can be either individuals or groups whose main job is to understand and support the stated idea correctly.
    The platform allows launching that idea in front of the right people so that these three parts together can complete that idea.

    Following are the types of crowdfunding -
    1. Equity-based crowdfunding
    In this type of crowdfunding, investors invest large amounts of money most of the time so that they can get a large piece of equity in the startup. Most of the time equity-based crowdfunding is done for the growth of the company.
    2. Reward-based crowdfunding
    In this, the investor gets a tangible product or award in exchange for his investment.
    3. Donation-based crowdfunding
    With this crowdfunding, any person or investor can donate as per his/her own cause for a noble cause. Donations can be of any. Here finally donors do not get any reward.
    4. Debt-based crowdfunding
    It is invested in the security of the company. This money is given to the company according to the loan and in return, the company will return the money according to the specified interest rate.

    Famous Crowdfunding platforms:
    Wishberry Funds
    Milaap
    Miracle Foundation
    range De

    Crowdfunding increases the productivity of innovation and entrepreneurship to a great extent. small industries can progress well with the right guidance that makes the way of doing business policy very easy. But always before investing, understand the risks associated with it, only then it is advisable to make any kind of investment.

  • Crowdfunding is defined as the venture funded by a large number of people in small amount rather than funded by a few investors or promoters. It is generally done on the internet due to the deep reach of the internet across the globe and easy money transfer. For a successful crowd funding venture one has to make a campaign for that in the internet and convince the small investors about the viability of the project for which crowd funding is being raised. A good campaign can bring in good money for running of that business and if it runs successfully the investors may also get rewarded. Crowd funding is not an easy thing that everyone jumps in it. One has to understand the modalities and intricacies of this area in details before entering.

    There are various categories under which the crowd funding might be sought like rewards, donation, debt and equity. Whatever be the mode announced for the project the main thing is to convince the investors. Generally starts up will go for these modes and have to showcase the utility of their project for the society and human beings in discreet ways. If the idea is innovative and people find a future business opportunity also then crowd funding would start trickling in and soon a good fund will be created. There are of course some rich people in this world who if satisfied can give money to these ventures just like a philanthropic gesture.

    Depending upon the mode of investment the contributors would get the return. The donors will not get any return as it is a voluntary donation, for debt based investment the investors would get the interest on their capital, those who invest as share holders will get shares, and others who have given money for rewards might get goodies and products as return.

    It is interesting to note that there are many crowd funding platforms who are very successful in raising money from the investors in one way or other and to name a few of them, they are Kickstarter, GoFundMe, LendingClub, Republic, Indiegogo etc. These sites have their own rules and regulations to carry out the crowdfunding matters.

    It is not necessary that in the beginning of a venture only crowd funding is sought. In fact it can be attempted anytime during the progress of the business. The business house can generate and raise an internet community interested in its operations and then seek the financial support. Such ventures occasionally are more successful.

    Those who want to raise money through this medium, a thorough knowledge of crowd funding basics and learning of its working modalities will be required before one starts a campaign of this kind.

    From investor point of view like many other investment arenas the crowd funding is also a risky area and one has to think twice before investing in it. In todays tough and competitive business environment investing in any such venture will have its own associated risks and some homework will be needed before one decides to go for that.

    Knowledge is power.

  • Crowd funding has been the way of life of many people. The reasons appearing in the newspapers or media seem to be justified for the reasons indicating the cause to raise money but the fact is that sometimes these are the mere stories to generate money.
    The modulus operandi is simple explaining the details why money is being generated indicative of the disease such as cancer with which the baby is suffering and the expenses involved for this disease is beyond their reach if the addressee is not getting timely financial help. At the end of such notification, you would get details of the addressee, account no, name of the bank, location, IFSC code, location of the bank etc. you would be requested to make donations liberally to meet the medical expenses. It could be correct or otherwise. It would be rather difficult to identify the prevailing situation of the advertiser.
    These may be categorised in different ways such as opening up a cancer unit where all the facilities would be offered in course of treatment and the patient would no longer require any external support from elsewhere while staying at hospitals.
    The other case may be the case of a child critically suffering from cancer and any negligence on that account would lead to unfortunate death of the child.
    These causes are enough to raise sentiments of the public prompting them to offer donations through the different means such as cash transfer through RTGS, making payments through the debit or cash cards etc.
    Then there are debt based investment in some companies where the promoters would indicate the objectives and the benefits to be accrued staying invested with the company. They would indicate the benefits and the mode of refund of the money indicative of time period and the rate of interest, they would enjoy for their investments. Such investments may prove to be risky sometimes and need a careful thinking prior to investments.
    Then there are provisions of rewards schemes for the different investors and would vary proportional to their investments. The rewards may range from a jean to a TV set, though the reward sometimes may not attractive to the investors, but there are companies engaged in crowdfunding would very often apply such tricks.
    Equity conversion- The companies would convert the invested money of the borrowers in terms of equity making them share holders. They may pay out dividends on regular basis to enjoy their confidence.
    The investors should be cautious while dealing with such companies and such sites need a careful scrutiny prior to investment procedures.


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