Crowfunding as a financing method

The term Crowdfunding makes reference to the word “Crowd” that means multitude and “Funding” that means financing, so it consists in the collective financing of projects.

 

Crowdfunding can be defined as a way of raising funds by asking a large number of people for a small amount of money. Until recently, the typical and the unique way that people consider to financing a business, project or venture was by asking a few people or banks for large sums of money; the crowdfunding switches this idea around, by using the internet to talk to thousands, millions of potential funders.

 

 

 

 

 

 

 

 

 

 

 

This financing method is made through online platforms, also social media, in which entrepreneurs upload their project with all their characteristics, specifications and properties; on the other hand the investors will look the projects that fit better with their funds and expectations.

 

Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits of Crowdfunding

 

Efficiency

 

It is more efficient than traditional fundraising because compared to applying for a loan or seeking out accredited investors, setting up a successful crowdfunding campaign on Fundable or another platform is far more efficient and effective in getting your message out to the right people.

 

Social proof and validation.

 

It is a place to build traction, social, proof, and validation, by this platform, potential customers will show interest in the startup product or service, so it would generated social proof, and others are more likely to follow suit.

 

Brainstorming.

 

It is an opportunity for crowdsourced brainstorming to refine the idea, so it is important to consider any opportunity for customer feedback and take in consideration to the project.

 

 

Risk is diversified

 

By using this method the risk is diversified due there are different sources of funds, while in the traditional method the default risk is assumed by the bank that granting the loan, so this scheme minimizes investment risks due to its size, which mitigates somewhat higher risks for investors individually.

 

Marketing 

 

From launch to close, it is a way in which entrepreneur can share and promote their campaign through social media, email newsletters, and other online marketing tactics. Also they can cover the progress of fundraise.

 

   By: Diana Stacey Bravo

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References:

 

• Cuesta, C., Fernández, S., Roibas, I., Rubio, A., Ruesta, M. (2014). Crowdfunding en 360º: alternativa de financiacion en la era digital. Retrieved from: https://www.bbvaresearch.com/wp-content/uploads/2014/10/Observatorio-crowdfunding-vf2.pdf

• Rodriguez, T. (2013). El crowdfunding: una forma de financiación colectiva, colaborativa y participativa de proyectos. Pensar en Derecho, 101-123. Retrieved from: http://www.derecho.uba.ar/publicaciones/pensar-en-derecho/revistas/3/el-crowdfunding-una-forma-de-financiacion-colectiva-colaborativa-y-participativa-de-proyectos.pdf