You probably have heard or seen in social networks and news the word crowdfunding, although, perhaps, you don’t yet know its correct meaning. Crowdfunding means micromanaging or corporate financing, i.e. it happens when a different number of people contribute an economical amount to finance a project.
Crowdfunding has its origins in the first Open Source projects when developers unselfishly offered their creations and works for others to use. A resounding success that caused these developers to start soliciting donations to get on with their jobs. It was this relationship between creators (who did not have enough economic freedom to continue their work) and users (who were interested in new creative and innovative projects) from where crowdfunding came about.
Definition of the concept of crowdfunding
Crowdfunding is the corporate financing through the Internet. It is cooperation, carried out by a group of people to get money (or other resources), joining efforts and initiatives of other individuals or organizations. It is also known as “mass outsourcing” or “voluntary subcontracting” (both concepts are unknown to most).
The immediate antecedent to crowdfunding is with the donations or even the patronage that was practiced centuries ago. The term continues to renew now with social networks, online communities, and micropayment technologies.
Nowadays, crowding has extended this form of corporate financing to other plots. Creative projects (recordings, book editions), solidarity projects, business startups, shops, etc. which has given rise to multiple online platforms. In the search for crowdfunding, that offers their “space” for the inclusion of these projects, which indicate the type of initiative, the time during which contributions can be made, the total amount needed to finish it, etc.
There are also “rewards,” as a gift to the people who contribute money to the project: an acoustic concert at home, a dedicated photograph, etc. Something about the idea that you could carry out and reward that disinterested help.
Last year, projects worth $62 million were funded in Spain through crowdfunding, which is 114% more than in 2015. So we can say that this corporate financing (made up of individual contributions, mostly) is the future for many ideas and projects to see the light, whether in the cultural sphere or in the small business or business.
The use of crowdfunding
If you are thinking about setting up a business and do not have enough money you have several options:
- Ask for a loan to your bank,
- Win the lottery
- Publish your project on a financing platform.
Crowdfunding or collective financing, is a form of investment to carry out a project through private donations, companies or investors.
In return for these gifts, small rewards are often offered that are related to the project being funded. In this way, it can be merchandising of the product, an appearance on the creator’s web or the anticipated access to the product itself.
In fact, the more creative and attractive the rewards are for your patrons, the more likely you are to be able to help fund the project.
But how does crowdfunding work?
The platforms specialized in this subject are the point of convergence between the investors and the promoters of the project. In this sense, the most normal are to establish a period of one to three months to get the money.
At this point, there are two modes: the “all or nothing,” and the “everything counts.” In the first case, if you do not receive the total amount of funding you have established, the co-financiers do not contribute the money, since you have not got the desired financing, and your project will not be carried out. Of course, some platforms let you promote your idea again with a new crowdfunding campaign, even though the first one has failed.