What is ‘Crowdfunding’?

Crowdfunding is using small amounts of funding from a large number of individuals to fund a new business enterprise venture.

Created By Civic
On Jan 8, 2018
Help Translate This Item

What is ‘Crowdfunding’?

Crowdfunding is using small amounts of funding from a large number of individuals to fund a new business enterprise venture. Crowdfunding utilizes the easy accessibility of large networks of people through social networks and crowdfunding websites to provide investors and businessman together. Crowdfunding has the potential to enhance entrepreneurship by growing the pool of investors from whom funds could be boosted beyond the typical circle of owners, relatives and investor.

  • Breaking Down 'Crowdfunding'

In the USA, crowdfunding is limited by regulations on who is permitted to fund a new business and how much money they are allowed to contribute. Just like the limitations on mutual fund investing, these regulations are expected to protect uninvolved or non-wealthy investors from putting a lot of their savings in danger. Because a lot of new businesses struggle, their investors face a high risk of losing their principal.

  • How Crowdfunding Operates.

Crowdfunding has generated the chance for business owners to raise numerous thousands or millions of dollars from anyone with money to invest. Crowdfunding websites like Kickstarter and Indiegogo attract countless people wishing to spend in the next big thing. In 2015, nearly 80,000 people set up beyond $20 million on Kickstarter for a company that established a smartwatch substitute to the Apple Watch.
Crowdfunding provides an online forum to anyone with an idea to pitch it in front of waiting investors. One of the more amusing projects to receive funding was from an individual who intended to create a new salad recipe. His fundraising target was $10, but he raised more $55,000 from 6,911 backers. Investors can select from a hundreds of projects and invest just $10. Crowdfunding sites yield revenue from a percentage of the funds raised.

  • What's in It for Investors?

A lot of crowdfunding or finance projects are rewards-based; investors may get to join the launch of a new product or receive a present for their investment. For example, the maker of a new soap constructed of bacon fat sent a free bar to every of its investors. New computer games are a well-known crowdfunding investment for gamers, who are rewarded with advance copies of the game.
Equity-based crowdfunding is growing in popularity because it allows startup companies to borrow without quit control to financial backing investors, and it offers investors the opportunity to earn an equity role in the venture. Investments in equity-based crowdfunding ventures are regulated by the Securities and Exchange Commission (SEC).