20 / 11 / 2019

Crowdfunding

Characteristics of crowdfunding

 

Crowdfunding is a form of financing various business venture and economic projects by the community gathered around such a ventures or projects. This community is interested in its implementation: funding the project and its realization, because it benefits the community. Crowdfunding is a way of allocating capital, which means that a person usually raises capital from many people unrelated to him/her, which in practice usually applies to a large number of one-off payments of small amount to achieve a precisely defined business goal. This goal – and often a few additional goals – are communicated to the donors by the person entering the market with the project. An inherent feature of financing activities in this way is the use of the internet and related information technologies (social media, email, etc.).

 

Crowdfunding and public fund-raisers

 

Crowdfunding cannot be equated with public fund-raisers, because in public fund-raisers donors funding the goal receive nothing in return except the satisfaction of being able to help a person or organization. Public collections are not organized for profit by their organizer.

Crowdfunding, on the other hand, always involves returnable benefits, which means the remuneration of contributors to fund a project (goal). In other words, crowdfunding is not a charity, because depositors are rewarded for their contributions, usually in the form of receiving a product or service. Crowdfunding can be a method of financing that will strengthen the chance of long-term profits from the implemented project.

 

Types of crowdfunding

 

There are basically two types of crowdfunding: product or equity crowdfunding (crowdinvesting). The first is to provide the payers a finished product (or service) in exchange for achieving the assumed financial goals at the end of fundraising. Equity crowdfunding (crowdinvesting) is associated with offering payers shares in a business venture or investment and offering them long-term profits due to their shares (similar to dividends for persons participating in companies).

 

Crowdfunding goals – types of projects

 

Crowdfunding distinguishes its two main goals of collecting funds. These are business, social, scientific and cultural enterprises. The most important feature of each of them is to help overcome existing capital barriers, for example, due to difficulties in obtaining a bank loan. Crowdfunding is also an important method of financing market entry by newly established entities, referred to as start-ups.

return to the list of articles