What is a Crowdfunding, equity financing?

You would probably hear something about a collaborative economy. There are many more and more examples. Internet contacts people with common interests. Yes, as well as individual investors and entrepreneurs looking for funding.

You can earn money for a project through the Internet thanks to so-called crowdfunding. In the digital age, a few weeks ago, Good Finance explained to us that this optional financing path (ie crowdfunding) has been added to what we already knew.

The key to crowdfunding is simply a web page

The key to crowdfunding is simply a web page

The procedure is simple and immediate. The money-seeking entrepreneur – completely unknown – explains his idea through a video or other illuminating material.

Then, he must upload it to an online crowdfunding platform and indicate the quantity, time frames and, if applicable, the prize. End of the first phase.

The importance of online promotion

Time to evaluate the project. Sometimes the website itself is done, and sometimes it is done in a community way. If the idea is approved, the project will be published for a variable period of time. The project must now be promoted. This is where the power of the digital ecosystem comes into play: social media, blogs, web pages, etc. Online machinery starts working to get the quantity specified within the agreed timeframe. At the end of this term, only those who have achieved the goals will continue to do so.

And what kind of projects can be funded through crowdfunding? Of all kinds. Micro-patronage of this kind has been on the rise in the last few years since the launch of Kickstarter platforms in the United States a decade ago. There are portals of all kinds: general, specialized in a particular subject or product … The aim is to find the one that best suits our goals.

Based on collaboration

money

The basis of crowdfunding is people’s collaboration. Collaborative economics applied to project financing. And this is possible thanks to the Internet. In addition to making money, projects can be enriched by people’s contributions and ideas; and often these become even more competitive. This is definitely a way to enrich the entrepreneurial ecosystem.

If you want to explore this path, you need to know that there are several types of crowdfunding :

  • Donation-based – Donation: The investor, who is the financier of the idea, makes a donation. He receives nothing in return. This type of crowdfunding is related to social and civil projects.
  • Reward-based – Prize: a project is funded, in exchange for prize money of others. For example, you can finance the recording of a disc and receive a copy of the disc or promotional material (shirts, posters, etc.).
  • Social lending or peer-to-peer lending: money lending between individuals at more favorable prices than the market offers.
  • Equity-based: In this case, the equity of the new company is remunerated.

As you can see, crowdfunding is not just an innovative economic tool that was born to fund projects (in principle, creators). It is based on a philosophy that is fully adapted to the new times and is linked to the collaboration between equals, using this network. In addition, legislation on this is not yet well defined and varies from country to country.

It is very important to know all the possibilities that can be used to finance an entrepreneurship project. The more information, the better. Of course, then you need to decide which one is best for you, given your expectations.

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