The arrival of the Internet has opened thousands of possibilities for the creation of companies, so much so that some do it solely to operate in this channel. But in this article we are not going to talk about how to start a business online, but about how online platforms can help us promote and realize our project. More specifically, we are going to talk about what crowdfunding is and how it works.
Crowdfunding: What is it?
Until very recently, the most normal thing when you wanted to create your own company was to go to a bank, to certain subsidies and aid, or even to family and friends to be able to launch it. Once again, technology tries to make our lives a little easier thanks to crowdfunding.
Definition of crowdfunding
Crowdfunding is an English term that refers to a type of collective financing (also called micro-patronage), generally carried out through online platforms, in which a certain project or initiative is financed through small contributions.
These projects do not always have to be business initiatives, but can also be:
- Business activities
- Solidarity projects
- Political campaigns
- Non-profit organizations
Basically, crowdfunding puts people who have a business idea and need financing in contact with others who are willing to invest a certain amount of money in exchange for a reward, not always monetary.
Crowdfunding modalities
Although there is no good definition of the different types of crowdfunding that exist, experts do classify this type of collective financing according to the consideration that investors receive. As we just saw in the previous section, the reward is not always monetary.
1) Rewards crowdfunding
It is the collective financing model that collects the most funds. In it, investors make a monetary contribution in exchange for a product or service related to the project in which they are investing.
2) Donation crowdfunding
There are a lot of projects related to social causes or solidarity projects that follow this financing model. That is, the idea or project is presented, and the investors (or rather, donors) do so only because they believe in the cause, without expecting anything in return.
3) Equity crowdfunding
It is another of the most used types of crowdfunding. Through this model, the micro-investor receives as consideration the possibility of being part of the project as a shareholder through shares or participations in the company.
By becoming shareholders of the company, investors receive a percentage of the profits, depending on the contribution made.
4) Loan crowdfunding
Also known as crowdlending, it is the crowdfunding model most similar to the traditional financial system. In it, the lender is offered an interest rate on the money lent, although generally this interest rate is much lower than that of the market. In crowdlending, investors or lenders become small bankers.
How crowdfunding works
Depending on the type of crowdfunding we are talking about, the operation is not always the same, although there are a series of steps common to all models:
1º. Choice of the crowdfunding platform
When a person has a business idea and wants to materialize it and carry it out, the first thing they have to do is look for a source of financing. If you are clear that you are going to opt for a crowdfunding system, the first thing you should do is choose a platform that allows you to promote your idea and collect contributions.
2º. Presentation of the project
You already know what platform to use, now is the time to present your project. Think that this information will be available to your potential investors/donors/lenders, so dedicate time to this phase.
You will have to indicate a complete description of the project, the amount you need to launch it, a period of time, reward method, etc. And, if the platform approves it, it will be published.
3º. Publication
The idea of your project will be available during the period of time you have chosen so that investors can make their contributions.
In this phase it is very important to promote your candidacy as much as possible to collect as many funds as possible.
4º. Project closure or end of term
It may be that you have obtained sufficient funds in less time than expected or vice versa, the term has ended and you have not been able to finance your entire project. Be that as it may, the platform is responsible for managing and ensuring that the reward model is fulfilled or, in the event that it is finally not carried out, the amount is returned.
Crowdfunding platforms
There are a thousand online platforms that were created to give way to this type of collective financing. Here are some of the most used depending on the type of project you want to publish:
- Indiegogo: This crowdfunding platform has a lot of categories available, from health and sports to technology. Since 2008 they have already promoted more than 800 thousand projects.
- Ecrowd: With more than 5.5 million of investment made, this crowdfunding platform is based on the crowdlending model and offers projects related to health, energy, mobility, food, etc.
- Lanzanos: It is the most important Spanish crowdfunding platform and has raised more than 7 million euros in 2,500 projects. In it you can find business ideas related to health, sports, software, environment, photography, cinema, video games, technology and many more.
- Verkami: Another very powerful Spanish platform that was born in Barcelona in 2010. It specializes in projects related to culture, art and gastronomy.
- Goteo: In this case, it is a crowdfunding platform specialized in projects with social impact, with more than 150,000 donors and 8 million euros raised.
These are just some of the best known and used in the world, but you have many more. I encourage you to do a little search on Google and find the one that best suits your business idea. If you put effort and desire into it, I am sure it will be a success.
