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What is crowdfunding and how does it work?

What is crowdfunding and how does it work?

Crowdfunding – also called collective financing or collective microfinance is to get multiple small donations to raise money or other resources to finance projects.

• Small but effective contributions

British rock group Marillion are usually considered as the pioneers of crowdfunding when in 1997, they were able to finance their first US tour with contributions from fans.

So began massive funding appearing in the artistic environments, and thus was born the website Kickstarter, a web platform to fund creative projects. The widespread success of the Kickstarter crowdfunding concept is used today for many purposes, such as financing of political, social or charitable campaigns or to finance new businesses.

After Kickstarter, other platforms have emerged as RocketHub , P2P Financial or Potlatch , specialising in social entrepreneurs.

• Crowdfunding basically works like this:

1. The creator posts on one of the platforms all the information of the project, its aims and objectives of the funding.

2. Contributions made by the public may correspond with different rewards: from a minimum contribution with a corresponding “thank you very much” through average contributions that report for the donor to be named. This goes up to a level of most important patronage that can be rewarded with more exclusive things like dinner with the creators, an exclusive edition or original work, etc.

3. Only if the entire amount requested is collected, will the creator receive the money and keep the rewards.

4. If the entire amount is not met, the project is postponed or cancelled, and the funds are not allocated to the project.

At a time when everyone wonders how to fund your business plan, crowdfunding can be a good alternative. But even with a platform to publish your project, you cannot expect to have pouring donations coming in straight away. On the contrary, to be successful, it is very important to organise a system of diffusion in online and offline networks to publicise the project and the possibility of financing it.

This form of financing is another example of how the network can collaborate and cooperate with other people and organisations to take forward projects. Another example would be the crowdsourcing (in which a function is outsourced to a community or group of people).

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