What is crowdfunding? Everything you need to know

We are used to the fact that if someone needs money to start a company or something else that requires investments, people resort to loans, loans from relatives and friends, the help of investors or try to save money themselves. But since the early 2000s, there is a new way to get money for aspiring entrepreneurs and it is crowdfunding. This method involves collecting money from a large number of people, which can be both individuals and charitable organizations. In this article, we will explain in more detail all the basic principles of crowdfunding.

Types of crowdfunding

Below we will discuss the six types of crowdfunding and what they are:

  • Crowdfunding based on securities – this method means investing in startups, on the assumption that investors get a piece of the startup company’s stock, and if it goes well, they will have a meaningful benefit from it
  • Donation-based crowdfunding – or in other words, charity, which does not oblige entrepreneurs to give something in return for capital
  • Rewards-based crowdfunding – which is the exact opposite of what was described above. People donate money in return for a reward, such as a gift in the form of products the company is engaged in
  • Single peer lending – these are loans that don’t involve banks as an intermediary, it’s a loan that you take from a specific person and vouch for it to give back to them
  • Real estate crowdfunding is real estate investing that is very similar to the type of securities crowdfunding
  • Human capital crowdfunding is a way that investors finance a project but in exchange, they get a share of the winnings

What is crowdfunding for companies and how does it work?

Businesses use different ways of crowdfunding to raise capital to launch a specific project (startup). This opens up the opportunity for many aspiring entrepreneurs to succeed in their businesses. In many cases, it is a win-win situation between the financiers and the financiers. The company gets a boost to growth, and the investors get their share in case of success.

The opportunity to participate in crowdfunding can be found on special platforms, one of the most popular is Republic. With it, you can contribute just by clicking a button. Watch and decide which startup offers more favorable conditions and has the more winning idea for business development.

Benefits of crowdfunding

Starting a business from scratch is an extremely difficult task, not every startup is taken into consideration by venture capitalists, not every bank is willing to lend a large sum, and borrowing money from friends is not a way for everyone.

Crowdfunding is a financing method that involves a crowd of people. That is why start-ups disclose more information about their product, service, or brand to show that their scheme is thoughtful and transparent, and also to get people interested. This method gives people an impression of urgency, which excites and motivates, the company’s goal is to create excitement around itself and engage reliable followers.

Thus, companies can even interact with potential investors and create all the necessary conditions to find success.

If you look at it from the investors’ point of view, it’s a simple and easy way for them to support a promising company and make money on it. This method allows you to invest in several companies to increase your chances of winning.  Nevertheless, investing has always been a risky business, but a profitable investment will lead you to great returns.