Posted in Finance, Accounting and Economics Terms, Total Reads: 519
As crowdsourcing means gathering ideas from the crowd, Crowdfunding means gathering funds from the crowd (mostly available online). This idea is very much different from mainstream business finance which involves venture funding, angel investment, sourcing through bank loans or IPO. It involves raising funds from large pool of investors available on social media or on various Crowdfunding websites.
Apart of generating funds Crowdfunding has got various other benefits also. It can be used as a medium of concept validation, marketing and PR campaigns. Sharing ideas over Crowdfunding platform also gives the business required exposure before huge pool of large potential investors.
Primarily there are three types of Crowdfunding models named donation based Crowdfunding, debt based Crowdfunding and equity based Crowdfunding.
Donation based Crowdfunding: This type of Crowdfunding is generally done for charitable purposes like disaster relief programs by some non-profit organizations.
Debt based Crowdfunding: This is a microfinance model where investors get their money back with interest (generally at a predefined rate) after a predefined time. This is also an example of peer-to-peer lending.
Equity based Crowdfunding: This is also a microfinance model where money is invested for a small stake in the business or venture.