Crowdfunding, investors, startups
What is crowdfunding and how it works?
It is a process in which a person raises funds online for their business or project from a large set of individuals who are a part of a social medium or a crowdfunding platform. These individuals could be peers, friends, family, or individuals who are interested in the type of product or service that is offered. It is a simple way to tap into the person’s network.
Why should some invest in these projects?
The rate of Return: It offers a higher rate of return as compared to conservative lending.
Portfolio: It helps to widen one’s portfolio. You don’t have to rely on traditional methods of investing, especially if you are a small investor. Crowdfunding helps you to get higher returns and also minimize your risk.
Growing network: It helps you to know about several types of new business and startups. You are connected with several other investors and teams.
Types of crowdfunding
There are four types of crowdfunding. They are,
- Rewards crowdfunding – In this type of crowdfunding, the investor gets rewarded by the product or services. The reward would be based on the money they have contributed to the project.
- Donation-based – It is a popular type of crowdfunding that many non-governmental organizations choose to adopt. This is popular for organizations that run on a core objective of supporting a social cause or charity.
- Equity funding – In this, the investor gets a percentage as ownership of the business based on the contribution made.
- Debt crowdfunding – In this, the business owner has to repay the investors the amount they had lent along with the interest. The repayment is made on a schedule over a period of time.
Before funding a project, know about the regulations and important pointers that you as an investor need to consider. Read crowdfunding your venture by Meera Siva, Certified Financial Advisor, and a financial expert.
Read more – Crowdfunding your venture by Meera Siva, a financial expert, discusses the pros and cons of crowdfunding
What are the advantages?
Maximize your earning
Crowdfunding through online platforms gives a business owner a potential to reach investors who always look to fund new projects. They get to connect with many interested people. For investors, crowdfunding helps to maximize their earning by funding a captive project.
If you have funded a business based on equity funding, it gives you ownership of a business. If the business is highly profitable, then you get a high stake in the business.
While crowdfunding has many advantages, there are certain disadvantages as well.
If there are any patent or copyright breach with your project that you have funded, then you may have to be responsible for those. So before investing in a project, check for all the legalities that are involved in it.
Shady projects may prove to be a huge loss for your investment. Assessing the viability of the project plays an important role.