Crowdfunding is the practice of raising small amounts of money from a large number of people, typically via the internet, to fund a specific project, business venture, or cause. It involves three main actors: the project initiator (who proposes the idea), the supporters or backers (who contribute money), and a platform that facilitates the campaign. Crowdfunding can fund everything from startups, creative projects, social causes to medical expenses, and more. How it works:
- A project initiator creates a campaign on an online crowdfunding platform.
- They set a funding goal and deadline.
- Individuals from the crowd contribute money, usually small amounts.
- Depending on the type of crowdfunding, funders may receive rewards, equity, or loans in return.
- If the funding goal is met within the deadline, the project gets funded; if not, the money may be returned to the backers (fixed funding). Some platforms also allow flexible funding where funds are kept even if the goal isn't reached.
- Platforms usually charge a fee as a percentage of the funds raised.
There are different types of crowdfunding:
- Donation-based: Contributors donate without expecting financial return but might get a small token or a product.
- Reward-based: Funders get a tangible reward like a product or service.
- Equity crowdfunding: Investors get shares in the company.
- Debt crowdfunding: Funders provide loans and earn interest.
Overall, crowdfunding democratizes fundraising by enabling many people to contribute modest sums to collectively support projects or ventures without traditional financial intermediaries.
