M2L10 Crowdfunding I – introduction

What is crowdfunding?

  • Crowdfunding or group financing is a process in which the community is asked for financial support for the realization of an idea.
  • The process takes place via the Internet, and the goal is to include as many people as possible who bring small payments up to a significant amount needed for the realization of the project.
  • Crowdfunding is an alternative financial mechanism because it does not belong to traditional ones such as bank loans.

Crowdfunding in the past

  • Crowdfunding as a term is anything but new. It has been around for centuries. For example, the construction of the Statue of Liberty in New York was funded by the community, as were some of Mozart’s concerts

Features of crowdfunding

  • Transparency… Everyone can see how much money you have collected. You can also see who contributed if that person wants to be visible publicly. Transparency creates credibility.
  • Digitality… Everything is online, through the Internet. The platforms are easy to use, and if you plan your campaign well, you are a few clicks away from potential supporters.
  • Marketing… It contains a wide combination of marketing elements. It is a type of marketing that brings really different benefits, but because of that, it is also demanding to implement. People who have just started developing their idea or business are usually not used to such detailed campaigns, with so many different parts.

Benefits of crowdfunding

  • Promotion… Your project, if you want to be successful in crowdfunding, will have to achieve a certain promotion – you have to reach your target groups.
  • Market research... If you don’t have a project in higher stages of development with targeted market research through a crowdfunding campaign (yes, that is also possible), you will receive positive or negative feedback from your community.
  • Community. Crowdfunding depends on the community. Either you have it, and crowdfunding is much easier, or you have to build it.
  • Large investors...Through the visibility of your campaign, you can reach potential investors who like your idea. This actually happens quite often.
  • Media… You need to reach out to various media channels to reach your target groups. Those contacts and experience in using the media will remain as a benefit that you can use after the campaign.

Advantages of crowdfunding

  • Speed. Crowdfunding campaigns are a quick way to finance a product launch.
  • Global approach. You are not geographically limited in promoting the campaign and collecting money
  • Control and possibility of testing. The whole process is in your hands, and there is no cheaper way to test the product
  • Unexpected benefits. You can easily collect more money than you need. Advice, additional investments, media visibility, first/loyal customers.
  • Equity – projects and jobs remain in your 100% ownership.
  • Pre-sale. It can also be used as a pre-sale of a specific product or service.

Disadvantages of crowdfunding

  • Stress. Running a campaign is not an easy job! Crowdfunding is not an easy way to make money!
  • Constant work and flexibility. The success of the campaign depends on thorough and good preparation as well as constant adaptation.
  • Different expectations. The greater the number of backers, the greater the number of their expectations and needs.
  • Competition and competitiveness. Your campaign is not the only one, and your product is not the only one. You face a lot of competition at all times!

Related terms

  • Sharing economy
  • Crowdsourcing
  • Crowdinvesting
  • Fundraising
  • Alternative Financing

Types of crowdfunding

  • Donation-based, reward-based, lending-based, equity-based
  • Different types of crowdfunding attract different types of supporters – donations and rewards are community-dependent and often in the earlier stages of product or service development. On the other hand, more developed businesses seek financing from investors – through the sale of their shares or through lending processes.

The most famous platforms

  • Kickstarter
  • Indiegogo
  • Kiva
  • Funderbeam