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Demystifying Crowdfunding: A Complete Guide for Beginners
September 30, 2023
Crowdfunding is the process of collecting small amounts of money from a large number of people, usually through an online platform. Crowdfunding can help you turn your idea into reality, whether it’s a new product, a social initiative, a creative endeavor, or anything else you’re passionate about.
However, crowdfunding is not as easy as it sounds, it requires careful planning, preparation, and execution. You need to have a clear objective, a compelling story, a realistic budget, and a loyal audience. In addition, you need to choose the platform that suits your needs, invest time in creating an attractive campaign landing page, set a reasonable goal and deadline, and promote your campaign effectively. If you’re feeling overwhelmed by all these steps, don’t worry! In a previous blog post, we distilled them into 5 easy steps that will help you launch a successful crowdfunding campaign.
On the contrary, if you are not familiar with crowdfunding, in this blog post we are going to help you demystify crowdfunding and guide you through its relevant terms and features. Therefore, we’ll explain the basics: what is crowdfunding, its benefits, uses, and the different types of crowdfunding platforms. By the end of this post, you’ll have a better understanding of how it works and what you need to do to make it work for you.
What is crowdfunding?
Crowdfunding is a form of alternative finance that involves raising money from the public for a specific project or purpose. It allows anyone with an idea to reach out to potential backers who are willing to support them and their project financially in exchange for some benefit or reward.
What can you use it for?
Crowdfunding can be used for various purposes, such as:
- Launching a new product or service: You can use crowdfunding to test the market demand for your product or service, validate your idea, get feedback from customers, and generate pre-sales.
- Funding a social or environmental cause: You can use crowdfunding to raise awareness and funds for a cause that you care about, such as education, health, environment, human rights, etc.
- Supporting a creative project: You also can use it to finance your artistic or cultural project, such as a book, a film, a music album, a podcast, etc.
- Solving a personal or community problem: You can use crowdfunding to overcome a personal or collective challenge, such as paying for medical bills, tuition fees, travel expenses, disaster relief, etc.
Benefits of crowdfunding
Crowdfunding can offer many benefits for both beneficiaries and backers. For beneficiaries, crowdfunding can help them:
- Raise funds quickly and easily: Crowdfunding can provide access to capital that may not be available from traditional sources, such as banks, investors, or grants.
- Build an audience and a community: launching a crowdfunding campaign can help you reach out to potential customers, fans, supporters, and collaborators who share your vision and values, while also helping you create a loyal and engaged community around your project or cause.
- Gain exposure and credibility: Crowdfunding can help you showcase your project or cause to a wider audience and attract media attention as well as establish your reputation and authority in your field or niche.
For backers, crowdfunding can help them:
- Discover and support innovative ideas: you can find and fund projects or causes that match your interests and passions, discovering new trends and opportunities.
- Get rewards and perks: some crowdfunding campaigns offer rewards for backers so you can get exclusive rewards and perks from the creators you support. These rewards can range from tangible products or services to intangible experiences or acknowledgments.
- Be part of something bigger: most importantly, crowdfunding can help you join a community of like-minded people who share your values and goals, as well as help you make an impact on the world by supporting positive change.
What are the types of crowdfunding platforms?
Crowdfunding platforms are online websites or applications that facilitate the connection between beneficiaries and backers. There are many crowdfunding platforms available today, each with its own features, advantages, and disadvantages. However, most crowdfunding platforms can be classified into four main types:
- Donation-based crowdfunding: This type of crowdfunding involves collecting donations from backers who support your project or cause without expecting anything in return. Donation-based crowdfunding is usually used for charitable or social causes that appeal to people’s emotions or values.
- Reward-based crowdfunding: This type of crowdfunding involves offering rewards or perks to backers who pledge certain amounts of money to your project or cause. Rewards can be physical products (such as books, gadgets, t-shirts) or non-physical experiences (such as invitations to events, personal thank-you notes). Reward-based crowdfunding is usually used for creative projects or new products that appeal to people’s curiosity or preferences.
- Equity-based crowdfunding: This type of crowdfunding involves giving equity shares or ownership stakes in your company or venture to backers who invest certain amounts of money in your project or cause. Equity-based crowdfunding is usually used for startups or businesses that appeal to people’s ambitions or aspirations.
- Debt-based crowdfunding: This type of crowdfunding involves borrowing money from backers who lend certain amounts of money to your project or cause with the expectation of getting repaid with interest. Debt-based crowdfunding is usually used for personal or community projects that appeal to people’s sympathy or solidarity.
Each type of crowdfunding platform has its own rules, regulations, fees, and requirements. Therefore, you need to do your research and compare different options before choosing the best platform for your project or cause. If you are struggling with this, we gathered all the information you’d need from 6 platforms to help you decide which platform fits your needs in this blog post: How to choose the right crowdfunding platform: the 6 best crowdfunding platforms in 2023.
Overall, crowdfunding is a powerful and exciting way of raising money. It allows you to connect with people who share your vision and values, and who are willing to support you financially and emotionally.
However, it is not a magic bullet that guarantees success. It requires a lot of work, dedication, and creativity. Although there are some platforms that facilitate it for you, you still need to plan, prepare, and execute your campaign carefully and effectively. Increasing your chances of creating and running a successful crowdfunding campaign that will help you turn your idea into reality.