Crowdfunding: what it is, how it works, and What the Risks and opportunities are

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Crowdfunding is a term that is becoming increasingly common in our society, especially for those seeking to finance projects or initiatives. But what exactly does it mean? Crowdfunding is a collaborative financial practice that allows people to finance a project, idea or activity through online fundraising. This article will explore the different types of crowdfunding, who can participate and the associated risks, and the best crowdfunding platforms and products.

What is meant by crowdfunding?

Crowdfunding is a process in which a person or organization seeks to raise funds from a vast network of individuals rather than a single funding source. This collective funding method has become increasingly popular in recent years because of its ability to mobilize a large number of people.

Crowdfunding can be used to raise money for various purposes, including starting new businesses, funding art projects, raising money for social or environmental causes, and more. These contributions can be made through a crowdfunding platform, which acts as an intermediary between the project initiator and funders. The project initiator publishes a description of the project, its goals, the budget needed, and the rewards for funders.

Funders can then select the project they wish to fund and the contribution level they want to provide. Once the necessary budget for the project is reached, the money is released to the project promoter. In many cases, the project initiator must reach the total budget to obtain funding. Otherwise, the money is returned to the funders.

What types of crowdfunding exist?

There are different types of crowdfunding, each with its specific characteristics. Here are the main types of crowdfunding:

  1. Donation-based crowdfunding: this type of crowdfunding involves fundraising with no expectation of return. People donate money to support a cause, project or organization without expecting any reward. This crowdfunding type is often used for charitable purposes or to support nonprofit organizations.
  2. Rewards-based crowdfunding: in this type of crowdfunding, backers receive a reward for their contribution. The reward can be a product, service or exclusive experience related to the funded project. For example, if a person finds a project to produce a new board game, they might receive a copy of the game when it is completed.
  3. Debt-based crowdfunding: in this crowdfunding type, the project initiator issues debt security, such as a bond, and lenders purchase these debt securities. The project developer promises to return the money to the lenders with interest over time. Companies often use this crowdfunding to finance their growth.
  4. Equity-based crowdfunding: in this type of crowdfunding, backers receive an ownership stake or shares in the company or project being funded. In other words, lenders become shareholders in the company or project and can benefit from future profits. This crowdfunding type is often used by startups or small businesses seeking to finance their growth.

Who can do crowdfunding?

In theory, anyone can do crowdfunding. However, there are some rules and restrictions to keep in mind. For example, many crowdfunding platforms require that the project initiator be at least 18 years old and have a valid bank or PayPal account. In addition, the project sponsor must be able to clearly and convincingly describe the project they wish to fund and must have a solid plan for using the funds raised.

What are the best crowdfunding platforms?

Below you will find the list of the world’s largest crowdfunding platforms, each of which deals with different areas, with different aims and purposes and with advantages and disadvantages:

  1. Kickstarter: One of the most popular crowdfunding platforms, Kickstarter specializes in rewards-based crowdfunding for creative projects such as movies, games, music and technology.
  2. Indiegogo: a rewards-based crowdfunding platform that allows project initiators to raise funds for any project.
  3. GoFundMe: a donation-based crowdfunding platform that enables people to raise money for personal causes, such as medical expenses, education and emergencies.
  4. Seedrs: an equity-based crowdfunding platform for startups and small businesses seeking funding.
  5. Crowdcube: another equity-based crowdfunding platform for startups and small businesses seeking funding.

There are many other crowdfunding platforms that offer a wide variety of projects and campaigns. Some of these platforms focus on a specific sector, such as crowdfunding for music projects on PledgeMusic or crowdfunding for independent films on Seed&Spark. Other platforms are distinguished by their business models, such as Patreon, which allows content creators to receive recurring funding from their supporters, and Crowdfunder, which focuses on raising funds for startups and early-stage companies.

Where to buy crowdfunding products?

In addition  to  Kickstarter and Indiegogo, the two major U.S. crowdfunding platforms for financing products, there are smaller ones in Europe and Japan. For example, Makuake is one of the largest crowdfunding platforms in Japan, with a strong focus on technological innovations and design products.

Campfire is a popular crowdfunding platform in Asia that focuses on creative and innovative projects, including fashion and crafts. Eppela, on the other hand, is an Italian crowdfunding platform that offers a wide range of projects, including art, fashion, technology, and sports. Ulule is a European rewards-based crowdfunding platform founded in France in 2010 that focuses primarily on culture, art, and innovation.

Finally, KissKissBankBank is another French platform offering the possibility of creating fundraising campaigns for social and environmental projects. Today, KissKissBankBank is one of the largest crowdfunding platforms in Europe and has helped thousands of projects find the funding they need to come to fruition.

What are the best crowdfunding products?

Many exciting products have been crowdfunded. Most were created with advanced prototyping and manufacturing techniques such as 3d printing, CNC and laser cutting. Some of the best crowdfunding products are listed below:

Pebble: The Pebble was one of the first successful smartwatches funded through crowdfunding. Launched on Kickstarter in 2012, the Pebble has raised over $10 million in less than a month.

Exploding Kittens: This board game was funded on Kickstarter in 2015 and raised more than $8.7 million. The game quickly became a commercial success and sold over 8 million copies worldwide.

Oculus Rift: The popular virtual reality visor, Oculus Rift, was funded through Kickstarter in 2012. It raised over $2.4 million and launched interest in virtual reality.

Fidget Cube: this stress-relieving cube was funded on Kickstarter in 2016 and raised over $6.4 million. It is designed to help people relieve stress and anxiety and has a variety of tactile and movement functions.

The Everyday Backpack: This backpack was funded on Kickstarter in 2016 and raised more than $6.5 million. It is designed for photography enthusiasts and has a customizable compartment system to organize and protect the camera and accessories.

Eufy RoboVac: This robot vacuum cleaner was funded through Kickstarter in 2016 and raised over $2.8 million. It was created by the home technology company Anker and has become one of the best-selling robot vacuum cleaners in the world.

Conclusions

Crowdfunding is an innovative way to finance projects, startups and personal initiatives. There are several crowdfunding platforms, each with its characteristics and limitations, and funders can choose to participate in donation-based or equity-based projects. However, there are also some risks associated with crowdfunding, such as project failure, failure to deliver rewards to backers, and risk of fraud.

When participating in a crowdfunding project, it is essential to be careful about unrealistic promises and choose the right crowdfunding platform. However, crowdfunding can also lead to innovative and exciting products like the Pebble, Oculus Rift, and Eufy RoboVac.

If you’re passionate about Crowdfunding, you’ve come to the right place! NextNova was born thanks to the platforms Kickstarter and Indiegogo. Thousands of supporters have funded our projects like Egloo. Stay updated on all the latest news, or check out our comprehensive guide to crowdfunding.

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