💼 Crowdfunding: collective financing for business

Search for investments on the Internet (crowdfunding) is a popular and widely used solution for implementing your own business ideas and creative ambitions. If considerable investments are required to promote your business, then lending in banking institutions may not be suitable for everyone. Both the interest rate and the general terms of lending become unprofitable. People's lending on mutually beneficial terms for both parties can come to the aid of a budding businessman. Crowdfunding – what is it? In simple words – collective funds for the development of your business, idea.

Features of collective lending: what is crowdfunding

Crowdfunding is a collective lending. The amount of funding from each lender may be different. As far as possible, the donor provides a certain amount of money to individuals or recipients (organizations). The collection of the loan body is carried out for different purposes:

• Internet projects;
• Developments;
• Charity, support funds;
• Political agitation;
• Scientific research;
• Creation of films, clips.

To raise funds, the donor uses proven platforms, sites with many years of positive history. The creditor decides to provide financial assistance for certain purposes independently, based on his own preferences.

Crowdfunding: existing options and their differences

Depending on the goals, crowdfunding may differ in the loan amount and repayment period. The main types of collective lending:

Reward crowdfunding

The most popular type of lending for creative projects, ideas without receiving material reward. The peculiarity of this type is the ability of donors to receive the object of lending itself or a gift (for example, an invention in the scientific field, a piece of music, a painting) upon completion of the project. There are such projects within the framework of charity of specific individuals who want to help develop a specific business/movement.

Pros: it is possible to obtain the necessary funds in a relatively short period of time, and the donors often include persons interested in the project. Cons: the amount may not be issued in full, or partially. Large financial support for the implementation of large financial entrepreneurs is not in this option. The sponsor must understand what, for what and why it is worth issuing funds for a new invention.

Equity crowdfunding

Long-term investments by donors in full who are interested in receiving part of the funds from the sale /implementation of services, or a small percentage from the sale of goods.

Pros: an attractive investment option. The lender considers favorable conditions for itself, on the basis of which funds can be issued in full or in part. Cons: when attracting investors, it is important to correctly calculate the business project development strategy, profit and ways of income growth in different variations. A business plan will expand the potential number of donors. Projects with the possibility of partner business are popular.

Debt crowdfunding

A new option for investing in large financial projects and business ideas.

Plus: the donor provides 100% investment for the implementation of the project, business plan to an individual/recipient. A detailed business development project allows you to make a decision faster. Cons: it is important to provide guarantees for the return of funds. As such guarantees, the lender requires a part of the business, or a percentage of sales on an ongoing basis. The main requirement is a guarantee of return of money.

Why would sponsors invest in outsiders' ideas?

The basis of the crowdfunding movement is to achieve mutually beneficial conditions for three parties:

• Donor (creditor);
• Crowdfunding platform (website, site);
• Borrowing.

The crowdfunding system allows you to find an investor and implement what each participant wants: the sponsor receives interest from the loan, the borrower receives funds to implement the plan, and the platform receives interest from the collector. Therefore, the main thing to pay attention to is the popularity of the chosen platform, its rating.

Popular Crowdfunding Platforms

Kickstarter

Well-known crowdfunding platforms sponsor seemingly unremarkable projects. However, this is only at first glance. For example, the popular and largest crowdfunding platform

Kickstarter is focused on the implementation of scientific projects, new ideas in the world of IT technologies, the invention of all kinds of devices. To attract a large number of donors, it is important to post not only a plan, but also a video demonstrating the future device. Charitable support for creative people is also often found here.

Fundraising is done through Amazon Payments (3-5%). 5% of the funds raised is withdrawn by the crowdfunding platform. A distinctive feature of this resource is also a simplified financing system, and when lending, donors do not claim a part of the business/products.

Notable projects that have been realized thanks to financial support raised on Kickstarter include:

• Video games Shadowrun Returns, Wasteland 2, Project Eternity;
• Professional high resolution 3D printer;
• Hidden radio receiver, Bluetooth speaker.

Boomstarter

Boomstarter is the Russian analogue of Kickstarter. The creation of films, music, clips, video games and all kinds of devices are the main areas of financing. The Boomstarter platform takes the same 5% + 2-3% – payment system commission. To ensure financing, a description of the product/project is posted. It is important to indicate the minimum amount required to implement the plan. If the project does not collect the required amount of money within the specified period, all invested funds are returned to their owners.

Every day 100-120 new users register to implement their own projects. Preference is given to creative ideas, music, cinema. As of 2015, the platform has helped to implement more than 1200 projects.

Patreon

Patreon provides financial support to music groups, comic artists, writers directly. In fact, the fan himself can help his favorite singer in creating a new video, song. The distinctive feature of this resource is such a feature as monthly financial assistance not to the project, but to the author himself.

The Patreon resource is used by such famous personalities as Jonathan Rosenberg, Zach Weinersmith, Paul Taylor. The only thing that is prohibited for such a platform is sponsoring and posting porn videos, scenes with violence and perversion.

How to Launch Your Project or Startup on a Crowdfunding Platform

Special requirements for the individual are often not required. All that is needed is to make a correct and high-quality plan, with an interesting title, detailed content, and a successful presentation of the product. If the project collects about 30% of the total required amount in the first day, then the chances of receiving funding are high.

Responding to comments, being a constant active participant in the discussion is an important point. If a newcomer shows himself, then the chances of realizing his plan are high. The ratio of quality/need/price of the product is also extremely important.

How to become a project sponsor and what it gives

There are risks in every business. If the sponsor is confident of making a profit, or is ready to support a specific entrepreneur, then for this it is necessary:

• Consider existing offers on the site;
• Select only those categories that are close and familiar;
• Review in detail the terms of lending and receiving profit;
• It is best to issue large funds for a share in the business, or a percentage of the profit;
• Invest only in projects that inspire confidence, a properly prepared plan and presentation is half the success.

No one can guarantee 100% success. But if the donor is confident in the success of the project and is ready to provide all possible assistance for its implementation, then it is quite likely that this project will become the most successful and profitable not only for its developer, but also for investors.