What Is Crowdfunding and How It Works?

Previously, when anyone faced a financial crisis, they turned to financial institutes, their family, or friends for help at the time of an emergency. Be it a new business idea, medical emergency, or a wish to expand their business. Earlier, people only had a few options to raise money in the given time, but today, thanks to the internet, the concept of crowdfunding has completely transformed the process of gathering and raising funds.

Do you want answers to questions such as ‘what is crowdfunding?’ and ‘how crowdfunding works?’  If yes, then you have come to the right place. So, without any further delay, let us answer them for you.

What Is Crowdfunding?

Raising funds through crowdfunding gained importance in the late 2000s and has transformed the lives of many ever since. As the name suggests, crowdfunding is a way to collect funds from a group of people for a cause or business idea. It is a process that involves large groups of people pooling together small amounts of money to raise a significant goal amount needed by an NGO, individual, organization, or patient to resolve their  financial crisis.

Now that you can answer the question: what is crowdfunding? It is also important to know that anyone, an individual, NGO, or a company, can create a campaign for a specific cause and share it with people from across the world to contribute. You can be an aspiring entrepreneur with a ground-breaking business idea, someone trying to gather funds for a personal event or a patient who requires a hefty amount of money to treat a chronic disease; you can raise money with the help of reliable crowdfunding platforms such as Impact Guru, that is one of the most reliable crowdfunding platforms in India today.

There are many benefits of crowdfunding; but before we move ahead, there are three basic types of crowdfunding that you must be aware of:

1. Equity-Based Crowdfunding: One of the most popular types of crowdfunding, anyone who contributes to equity-based crowdfunding becomes a part-owner of the company by trading capital for equity shares. Thus, the equity shareholders receive a share of the profit in proportion to their contribution.

2. Reward-Based Crowdfunding: This type of crowdfunding is where the contributor agrees to participate in the fundraising in exchange for a product or a service offered by the company/individual.  In this type of crowdfunding, the distance between the campaign creator and the contributor does not matter. Some examples that can help you understand reward-based crowdfunding are as follows: providing funds for free software development, promotions, research, civic projects, and new inventions, etc.

3. Donation-based crowdfunding: This type of fundraising is based on charitable aspects. It is a way to source money to help someone fight a disease, overcome a sickness, support a social cause, or anything personal without promising anything in return to the investors. For instance, a campaign asking for small contributions to help hurt or stray animals, disaster relief, charities, medical bills, etc.

By far, we have learned the answer to the question: what is crowdfunding and have discussed its types. Now we can move ahead to another important segment that is: The benefits of crowdfunding.

There are many benefits of crowdfunding, to name a few:

1. It makes generating capital more accessible
2. Helps gain market validation
3. Acts as a marketing tool
4. Brings people with similar cause together
5. It’s a good alternative finance option other than banks and financial institutes

Moving on to the next important question: How crowdfunding works?

Crowdfunding is a simple process that lets you start a new campaign for free!

A nominal fee is charged on the funds raised through the campaign to cover the basic payment gateway and service fee.. This low fee helps crowdfunding platforms to continue providing the services of a verified fundraising platform and helping people get financial aid as quickly as possible. All you need to do is find a trusted crowdfunding platform, fill in your details and start a campaign (also called a fundraiser) of your own! Mention the reason for raising funds and voila! You have successfully completed the first step of getting financial aid loan-free and interest-free!

To amplify your campaign or fundraiser, share it across social media platforms and help word reach out to as many potential donors as possible. For a NO-payback fundraising experience, start a fundraiser on donation-based crowdfunding platforms such as Impact Guru, and raise your required funds with the help of the best tools and techniques available.