Crowdfunding is the practice of funding a project by raising money from many people, typically via the internet.
Crowdfunding is a form of alternative finance, which has emerged outside of the traditional financial system.
The crowdfunding model is fuelled by three groups of participants:
The project initiator
Individuals or groups who support the idea
- A "platform” that brings the parties together
In 2013, the crowdfunding industry grew over $5.1 billion.
The Money Show’s Bruce Whitfield interviewed Business Unusual Correspondent Colin Cullis.
Scroll down to listen to the audio for more detail.
There are three main types of crowd funding platforms:
Funds are donated to projects in return for rewards, acknowledgements or products
Some will return the money if the funding goal is not met, but some don't
Best suited for fans and enthusiasts for creative projects like games, movies
Very popular for products that don't exist yet
- Preferred platform for personal fundraising
Investment in the business not the product or service
Own equity in the business to get returns from future profits
Best for corporate ideas that will be an ongoing project and aimed at smaller investors
- Covers the raising of capital for micro loans
Ongoing support for projects that create mostly free content
- New model for paying artists that otherwise would not be able to perform
The industry might not be new (it is over a decade old) but its growth has occurred in the last five years. With that level of growth it will attract some shady operators and some less than honest campaigns.
As an backer, do your homework before making a payment.
If you want to create a campaign, know that there is no guarantee it will get you the funding or that you will not be expected to give regular feedback to those who have supported you.
Each platform has different terms for using it. Check that you know what you will be charged for using.
Projects mentioned in the conversation:
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