Crowd-funding, sometimes referred to as crowd financing or hyper funding, refers to the collective effort of a group or network of individuals who pool their money in support to efforts by individuals or organizations. Crowdfunding is sometimes called a “kickstarter” mainly because it is used to begin or kickstart a project. In fact, one of the most popular websites for crowdfunding is kickstarter.com. The pooling (and advertising) of the crowd-funding is usually done over the internet and it can be support for a wide variety of efforts, usually humanitarian. These include but not limited to: disaster relief (probably the most common), support for an artist, citizen journalism, startup company funding or even a motion picture promotion.
Crowdfunding can be alternatively referred to as company funding by selling small amounts of equity to many investors. This definition of crowdfunding offers equities to a larger pool of small investors that has fewer restrictions. Either definition, crowdfunding has a set of major components in order for it to work. This includes the individual or group that proposes the ideas to be funded and the people who will willingly support the ideas (the crowd, hence the name). Lastly, it requires a platform which allows the initiator to interact with the crowd, usually in the form of a social media site or online payment service or even a private website exclusively for use in crowdfunding.
Power of the Crowd
The origins of crowdfunding go a while back. The origins date back to the concept of a crowdsourcing; that is, the method of reaching a goal by using or leveraging contributions (big or small) from many parties. Crowdfunding is the application of the concept in terms of fund accumulation and collection. The main source of the crowdfunding scheme is the people or crowd, hence its name. This would require that the crowd be willing to donate a part of their own money to aid in the completion of an idea or effort. This can be a good way in getting a lot of money especially incredibly popular but free works to further its development.
The power is indeed in the hands of the crowd. The overall outcome of the project itself is mostly in the hands of the people that agree to the funding of the cause. Each person’s contribution determines the offering, promoting and selecting of the finished project. The most common role the people play is that of the donor. This is usually the case when doing something for charity or humanitarian aid like disaster relief or funding for a local orphanage. The crowd will sometimes become shareholders who contribute to the development and growth to the offering.
Using the crowdfunding strategy has a lot of advantages. The most obvious one is mainly that you don’t have to spend a large amount of money or for some, don’t even have to spend money at all to start a certain project. This is usually where the term kickstarter is applied because most individuals or groups opting for the kickstarter option have little to no funds to start the intended project themselves. To put it in a business perspective, crowdfunding is easy capital. More specifically, rewards-based crowdfunding lets entrepreneurs ask for funds in the community simply in exchange for their tangible products or offerings.
Another perk is that it cuts down risks. Starting a business or company is very risky and if diving into it unknowingly usually spells disaster. Crowdfunding allows for a valuable learning experience. It lets you see the potential of the planned business to grow and avoids in surrendering equity before diving in to the market with the product concept. Ultimately, it allows the entrepreneur to judge whether the venture will be profitable for the starting company or not. Consequently, advertising for the crowdfunding serves a kind of free marketing tool. By announcing that there will be a crowdfunding, the final product can be seen and judged accordingly by the people; whether or not it sparks its interest. This saves both time and money in spending for advertising for concept products. This is very useful for starting companies as funds may be allocated into something else or if there is little funds at all for capital.
Crowdfunding allows the people to interact with the starting company. If they agree to spare money to the cause, then they have not only showed that they are interested but also show that the product has some strength in the community. This means it provides a preview of the strength of the conceptual product; a proof of concept if you will. Lastly, the crowd may also give inputs into the project as well and what is planned might ultimately by changing it into something better for the crowd itself, further increasing their interest and eagerness to see completion of the project or cause.