Everything you need to know about Crowdfunding (Meaning, Types, and Examples)

Traditional sources of funding businesses such as loans from banks or financial institutions, equity investments from angel investors or venture capitalists, and personal savings or investments from the business owners themselves are no longer a reliable means for entrepreneurs to fund their businesses as they may require a lot of challenges and requirements which the entrepreneur may not be able to provide.

Banks typically offer loans to businesses that have a proven track record of profitability, a solid business plan, and collateral to secure the loan. Angel investors and venture capitalists invest in early-stage or high-growth businesses with the potential for significant returns on their investments.

Such requirements can be challenging and may not be attainable by the entrepreneur.

This is where alternative financing options such as crowdfunding can offer a new avenue for entrepreneurs to raise capital to support their businesses.

What Is Crowdfunding?

Crowdfunding is a method of raising money for a business through small amounts of contributions from a large number of people.

Crowdfunding takes place online through crowdfunding platforms. These platforms allow businesses and individuals to raise funds from a large number of people, often with small contributions from each supporter. The crowdfunding platform typically acts as an intermediary between the project creator and the funders, providing a platform for the project to be advertised and for funds to be collected and distributed.

Crowdfunding platforms allow entrepreneurs and project creators to showcase their ideas and goals, and to reach a global audience of potential supporters. They also provide investors with an opportunity to support projects and ideas they believe in and to become part of a community of like-minded individuals.

1. Kickstarter: Kickstarter is one of the largest and most well-known crowdfunding platforms. It focuses on creative projects such as art, music, film, and technology. Backers can support a project in exchange for rewards such as early access to the product or exclusive merchandise.



2. Indiegogo: Indiegogo is a crowdfunding platform that allows individuals and organizations to raise funds for a wide range of projects, including technology, creative endeavors, and social impact initiatives. It offers flexible funding options, allowing project creators to keep all funds raised even if they don't meet their funding goal.



3. GoFundMe: GoFundMe is a popular crowdfunding platform for personal fundraising and charitable causes. It allows individuals to raise funds for medical expenses, education costs, and other personal needs, as well as for charitable organizations and social impact initiatives.



4. SeedInvest: SeedInvest is a crowdfunding platform focused on equity crowdfunding for early-stage companies. Accredited investors can invest in companies in exchange for equity or ownership in the company.



5. Kiva: Kiva is a micro-lending crowdfunding platform that allows individuals to lend small amounts of money to entrepreneurs and small businesses in developing countries. It is designed to help support economic development and alleviate poverty.
   

Types Of Crowdfunding

1. Reward-based crowdfunding:
   In this kind of crowdfunding, investors receive a reward or product from the startup company in exchange for their contribution. The startup company may offer rewards that come in the form of discounts, and free access to their products, and services.
   



2. Donation-based crowdfunding:
   This is a type of crowdfunding where investors donate money without the expectation of receiving anything in return.
   



3. Equity crowdfunding:
   This is a type of crowdfunding where investors receive equity or a stake in the business or project in exchange for their contribution.
   



4. Debt crowdfunding:
   This is a type of crowdfunding where investors lend money to the business or project with the expectation of receiving interest payments and repayment of the principal.
   

If you are an entrepreneur looking for funding to grow your business and you do not know how to go about it. These are some tips that have been laid out to help you begin your crowdfunding journey, starting from the creating of a compelling pitch of what your business is all about down to reaching out to potential investors through online crowdfunding platforms down to sticking to your part of the bargain based on whatever agreement you have with the potential investors as regards to the business.

1. Make Your Pitch:

Develop a clear and compelling pitch that explains the business or project, its goals, and how the investment will be used.
This pitch has to be detailed and compelling so that it can attract potential investors.

2. Set Clear Goals:

Set realistic funding goals, and create a detailed plan for how the funds will be used.
Make sure your funding target is realistic and achievable, and set a timeline that gives you enough time to reach your goal.

3. Find Investors:

Create a marketing and promotion plan to reach potential investors, including social media, email marketing, and other channels. You can join a crowdfunding platform, as this will help you reach investors quicker.
There are many crowdfunding platforms available, such as Kickstarter, Indiegogo, GoFundMe, and more. Research and compare the different platforms to find one that best suits your project and funding goals.

4. Engage:

Engage with investors and potential investors throughout the campaign, responding to questions and providing updates on progress.

5. Keep To Own Side of The Bargain:

Whether it is a reward-based crowdfunding or an equity form of crowdfunding, or whichever form of crowdfunding in which you and the investor agree on, do make sure to
fulfill rewards or other commitments to investors on time and with high quality to build trust and loyalty.

In Conclusion
Crowdfunding provides an opportunity for entrepreneurs to receive funding for their businesses when traditional means become unattainable.
Whether you're a startup looking for seed funding, an artist seeking support for your creative project, or an individual raising money for a charitable cause, crowdfunding can be an effective way to bring your ideas to life.

However, it's important to remember that crowdfunding success requires careful planning, effective promotion, and ongoing engagement with investors. By following best practices and putting in the effort, you can increase your chances of running a successful crowdfunding campaign and achieving your funding goals.