According to Forbes.com, crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture, typically via the internet. Crowdfunding utilizes the accessibility of huge networks of people through social media and crowdfunding websites that bring investors and entrepreneurs together. Crowdfunding has the potential to benefit entrepreneurs by expanding the pool of investors beyond the traditional circle of founders, relatives, friends, and venture capitalists.
This method of funding can be a good way to obtain market validation by determining if consumers are interested in a product or service. A successful crowdfunding raise and subsequent success with the company can lead to larger capital raises later.
Rewards based crowdfunding is the most common model. This model allows people to pre-purchase products, buy experiences, or simply donate to a company. Generally, funders are not allowed to invest and become shareholders via rewards-based crowdfunding. Other types of crowdfunding include peer-to-peer lending, donation based, and equity crowdfunding.,
There are a wide variety of crowdfunding resources available and choosing the right one depends largely on the type of company, product, or service you are building. Some platforms are geared towards developing projects, some focus on funding more artistic initiatives, while still others are best suited for nonprofits. Furthermore, some platforms will collect money from individuals as it comes in, while others won’t collect money until a pre-determined amount is reached.
Links to Crowdsourcing Resources:
What is Crowdfunding (article)