What Is Crowdfunding and How It Works 

Crowdfunding is a way to raise money to put creative, innovative, social, environmental, and other ideas into practice and support them. Usually people who want to invest or recruit sponsors so they can make money from the projects they fund prefer to go for crowdfunding. But it’s also done for free when money is willingly donated to a charity or a startup that a person likes.

Let’s start with a bit of history. The very concept of “crowdfunding” was coined in 2006 by journalist Jeff Howe. In English, it is translated as “public funding.” This term began to operate quite recently, but the fundraising method has already existed in the last century.

Currently, crowdfunding is most frequently carried out online, i.e., through specialized internet platforms. However, the “sponsoring” for the Marillion’s (a rock band) 1997 tour is regarded as the first instance of such a scheme ever. The nationwide effort was carried out by American fans, who raised more than $60,000 in total.

Where Is Crowdfunding Used?  

Funds are collected for entirely different purposes. You can help implement artistic, educational, and technical projects. For example, opening a language school, creating a board game, inventing a unique window cleaner, and much more.

Most crowdsourcing happens on specialized websites, although funds are solicited through the media or social media. Television news features stories of people struggling financially or in terrible situations, such as children needing medical attention. Typically, they want an SMS with the donation amount. The fund distributes transferred funds on its own. In this instance, we are referring to fundraising, which is a gift. This phrase refers to the mobilization of financial resources for altruistic and social causes.

Crowdfunding may also be used for personal objectives. As an illustration, a student cannot afford to pay for their university education, nor can they afford to travel or get a car. Advertisements for support to preserve creativity are occasionally posted in groups or on individual pages on social media sites like Instagram. The page’s owner provides: 

• the card information;
• the location for money transfers;
• The link to a crowdfunding website.

To raise funds, the author of a crowdfunding project needs to indicate the exact end date of the investment and the amount itself.

The advantage of this method is the transparency of cash movements. That is, the investor must be sure that his money will not be lost but will be used to implement his plan.

If we talk about charity, this is a gratuitous investment of money. A person lends a helping hand and does not expect any profit from it. But it cannot be said about startups. If a person decides to invest in a business, they can make some profit in the future. The investor is entitled to a part of the contributed funds or the total amount if the project is successful and brings a lot of money.

One way you take risks when you invest in a startup is by not knowing whether the company will succeed. On the other hand, if the price of the shares rises, you can get really rich.

Types of Crowdfunding  

• Financing with subsequent remuneration. The project’s creator pledges to provide the sponsors with a present. This incentive could be a service, a monetary gift, or even a virtual bonus. Investors, for instance, can take ten classes for free in exchange for helping to build a language school. Or if you helped a strategy mobile game’s developers from the start, they’ll give you perks and exclusive features.
• Share investment is when an organization seeks to raise cash by offering shares in a project.
• Debt crowdfunding. A type of financing is when a backer makes a profit with interest.

The Most Famous Crowdfunding Platforms 

Kickstarter  

Its creators popularized the very concept of “crowdfunding”. Investment is available for all projects, but everything must be published in English. If the founder fails to collect the entire amount, the investments are returned to investors. It is known for the sensational smart watch project, the funding of which amounted to 10,266%. However, Russian users cannot register there: the site is available for residents of the United States, Australia, New Zealand, Canada, and some European countries.

Indiegogo  

A crowdfunding platform that collects money for art, charity projects, and unique ideas. More than 200,000 projects have already been implemented there. It establishes the following rules: in case of failure, or if the author changes his mind, he has the right to take the total amount, but at the same time, he will pay a 9% commission.

Patreon  

Bloggers actively use a reasonably well-known platform to collect financial assistance (donations). In other words: fans pay for a subscription to the channel, thereby` supporting the idol. The site takes 5% as a commission.