The Basics of Crowdfunding

Any big business today was a startup once. And for any startup to be successful, find the wings to fly, funding is super essential. Of course, motivation, market study, and customer needs are important factors too. But funding assistance is primary. One such funding assistance is CROWDFUNDING

Let us better understand this concept. Crowdfunding is where not one, not two, but a lot of people start to provide funds to a project. The funders are not limited to the creator’s circle, but anybody who finds potential in the project can back the project. There are so many websites that provide platforms for Crowdfunding. The list of which you can check in the blog “Best Crowdfunding platforms in India”.

There are three highly important basics of crowdfunding, which are to be known by all the project creators, who wish to acquire funds via crowdfunding and also the people who wish to provide funds for the project.

1. Rewards/ Donations

Here, the project creator and project backer decide before initiating the funding which the backer will be receiving. Under rewards, the creator will be rewarding the project backer based on their pre decided terms. The rewards can be the product itself, or some return8 on his funds, or some other form. The rewards may vary depending on the size of the donation made by the backer.

2. Debt

Debt-based funding are usually peer-to-peer (P2P) lending. In debt-based donations, the money pledged by backers is a loan and must be repaid with interest by a certain deadline. It is secondary whether the person who is lending money is a friend, family member or someone completely unknown to the creator.

3. Equity

Equity-based crowdfunding allows small businesses and startups to give away a portion of their business in exchange for funding. These donations are a type of investment, where participants receive shares in the business based on how much money they contribute. The terms of participation are pre-determined.

4. Donations

Under only donations, the backer provides funds as a form of donations and does not expect any return or gifts or rewards. It is a form of charity.

By these basic fundamentals, it becomes clear to the project creators which option for the backer is feasible.