Crowdfunding… What is it?

Crowdfunding is a method of raising funds from many people for a specific cause or venture. Using the collective effort of friends, family, various networks and even strangers, online crowdfunding mirrors the traditional concept of fundraising in a streamlined process. On a crowdfunding platform, the plans and ideas for a fundraising venture can be crafted in the form of a post, that can be shared and marketed across various online platforms. All the funds raised can be received through the post itself!

Why move to online crowdfunding?

With the digital revolution consuming everyday activities, this slow, yet inescapable metamorphoses of our lives into the virtual world has caused the internet to become an increasingly important part of life. As most activities are now carried out by digital tools, transitioning an important activity such as fundraising, especially for causes or projects that matter, to an online environment is inevitable.

Benefits of crowdfunding online

By crowdfunding online, the process of fundraising and its management is streamlined through one platform. This means that a fundraiser or project creator can create and design a campaign on the crowdfunding platform, describe the idea, share it directly across social media platforms and other online networks. People can then donate to the venture or share it within their own individual networks to gather and receive further support.

The benefits of crowdfunding online extend well beyond the dollars and cents raised, it helps communicate issues, drive awareness and empowers researchers and communities. Crowdfunding online arguably yields better results than traditional forms of funding. It is also a means of validating a venture.

Types of crowdfunding

There are three basic forms of crowdfunding:

‘Donation based crowdfunding’ is the least complicated form of fundraising, where donors donate to a cause without expecting anything in return. Generally, not-for-profits or individuals use this form of fundraising for charitable causes or for causes that positively impact society.

Rewards based crowdfunding is based on supporters donating to a venture in exchange for some sort of perk or reward. Often, a donor is promised a product or is given credit in research etc in exchange for their donation.

Equity based crowdfunding is where a donor makes a donation as an investment in a venture, in exchange for equity in the project. Equity based crowdfunding has increasingly been used by the real estate industry and is becoming popular amongst other industries as well. This has helped drive the multi-billion-dollar, crowdfunding industry across the world.

Funding models

“Keep it all” and “All or Nothing” are the two funding models that most crowdfunding websites adopt. The keep it all model allows the creator to keep every donation received, even if the funding target goal has not been met. On the other hand, the all or nothing model allows the fundraiser to keep all the funds raised only if the target amount is met.

Although online crowdfunding is a means of traditional fundraising on an online platform, it transcends traditional fundraising and can often be more effective. Campaigning online via social media helps transcend borders faced in the physical world and allows a greater reach of the venture, creating greater opportunities for donations.