Crowdfunding is a participative financing tool relying on social networks and communities (online) where people collectively fund a specific project.
Image from Rocio Lara
How it works
Crowdfunding is a form of cooperation between a lot of people to gather a sum of money to help in the development of an identified project/entrepreneur/initiative. This collective effort of individuals who network and pool their money, usually via the Internet supports efforts initiated by other people or organizations. In that, crowdfunding involves a variety of participants. They include the people or organizations that propose the ideas and/or projects to be funded, and the crowd of people who support the proposals. Crowdfunding is then supported by an organization (the "platform") which brings together the project initiator and the crowd.(Source: Wikipedia)
On the platform, any project holder or (social) entrepreneur can present his idea/ needs and ask the community to help him achieve his goals. According to the project’s nature, different types of individual rewards are being offered to the crowd.
Different models coexist but there is a conceptual and functional common approach:
- A preestablished sum to collect in exchange of an individual preestablished reward
- A financial target, that must be fulfilled otherwise transactions are not activated
- Trust as a key element in the process (both from the project holder who commits himself to achieve his project once the money is collected and from the donor who expects the settled rewards and feed back on the project).
Online Crowdfunding benefits
For the project holders:
- fewer risks
- room for error: if the financial target is not fulfilled, possible to restart another campaign
- direct access to a community involved in the co-creation process (the marketing of the project and support community starts before the official launch)
- possibility to enlarge the publicity through transversal social networking
- possibility to develop side projects linked to one principal project
For the Crowd (the investors):
- No risks: if the financial target is not fulfilled the transactions are not activated
- Possibility to support multiple projects even with small contributions
- Investment in assets untied with financial markets
- Possibility to follow the investment process in real-time (as there are multiple contributors)
- Great variety of individual rewards (i.e: goodies/ a copy of whatever is being produced/ name listed as contributor