Is crowdfunding an alternative financing option for projects or ideas?

In this startup era, crowdfunding or crowd funding is a very popular word. When you have an idea or project that can help to make our society better but you need fund to execute that, then why not people will come forward and help you with their small financial contribution. When people are alone then it's always difficult to do something bigger but when they come together then they form crowd and crowd have the bigger strength to overcome any problem. Crowdfunding platforms provide such strength to raise funds for such ideas or projects. Now what exactly crowdfunding? In simple words, we can say crowd funding as an alternative financing method.



Crowdfunding model includes three actors or key things. These are Founder or Initiator, Crowd Funders, a Crowdfunding platform.

Founder or initiator

Crowd founder or initiator is someone who creates or proposes the idea or particularly brings the project in front to be funded. The goal of crowd founder is not limited to just raise the capital. Crowdfunding is using social media platforms very intelligently. Most of the founders are using this platform to raise fund for some specific projects to cover the expense of the same. Whereas some founders are often using the crowdfunding platform to demonstrate demand for his product or project, they show his investors very intelligently that many people do trust on his project.

Crowd funders 

Crowd funders are basically those small contributors who give their money to support the project or idea. Funders give their money for supporting the cause or believing in the potential of the idea or project. 

Crowd funding platform

It's a platform where founder or initiator creates a campaign for a project or cause to raise fund. There are near about 480 crowdfunding platforms. All these platforms differ each other based on their revenue generation model, kind of campaigns or projects they promote. Most of the crowdfunding platforms charge a fee from founders or initiators. Some also charge a fee from donors or crowd funders. Some crowd funding platforms do not allow fund raising for a personal issue. Some platforms only encourage creative idea or projects. 

Crowdfunding Platforms or Sites

CrowdCube, Crowdrise, DonorsChoose, GiveForward, Gofundme, IndieGoGo, KICKSTARTER, Kiva, patreon, seedrs, teespring

Major types of crowdfunding

Donation Crowd funding, Equity Crowd funding, Debt Crowd funding, Reward Crowd funding etc

Donation Crowdfunding 

Donation or charity crowd funding is for supporting a cause. Investors do not expect any return from it. They are supporting the cause for which the fund is raising. Fund raising for the expense of medical treatment of critical illness or any other social causes are examples donation crowdfunding or charity crowdfunding. 

Equity Crowdfunding

Investors give their money to obtain a stake in the project or venture. 

Debt Crowdfunding

Here project founder or project initiator are bypassing traditional banking services and raises funds through small lenders. Sometimes it is called as "peer to peer" or P2P lending.
Reward Crowdfunding

Here funds raised for promoting motion pictures, any scientific research, software development project that will help to make our lives better.

Crowdfunding creates an alternative financing option for all people who have some ideas or projects to implement. But sometimes such projects are not trusted by investors because nobody has any clear idea about the demand of such projects or ideas. Here crowdfunding platforms play a big role.

By launching such project on crowd funding platform, initiator or idea creator can show the demand of the product very significantly. It may be possible that crowdfunding effort does not meet the goal but it will be successful to draw the attention of many venture capital and angel investors. But if such project does not meet the minimum target or unable to attract people then it will be very hard to find any investors for such project in future.