How Does Crowdfunding Work?

how does crowdfunding work

There are a lot of pros and equally as many cons to living in the digital age. Cons are things like online trolls, bad reviews on your business, or anonymous messages that make you feel bad. But pros outweigh the cons by a long shot. There is fun videos that make you feel nice, entertaining memes that you can share with your friends. And if you are trying to put together a project, or if you need a little help finishing one, there’s Crowdfunding.

If you are not sure what Crowdfunding is, don’t worry. I am going to teach you all about it in this article. Stick around until the end and you’ll know everything you need to know about this fantastic way of connecting people and making projects together.

How Crowdfunding Works in a Nutshell:

To start things off, crowdfunding is a way for people or companies to complete projects by involving the public. Imagine you are putting together a big time movie, but you only have enough money to rent the cameras. You still need a set, actors, and people who are going to be a part of the crew. You can use this method of funding to bring everyone else into it. It’s like a donation of sorts, but for big projects.

You get to support the cause and get your name in the credits, and someone else gets to have their goal reached so whatever they were trying to save up for can be finished, made, or bought.

A lot of different online influencers use this method to fund their big projects, giving out small rewards to those who choose to give money to the cause. You could get a hat, a t shirt, or you could get a copy of the movie they are making. Some will offer a rebate for a related product.

Know Which Type of Funding You Want.

There are a couple of different types of funding you can choose from. You have to be specific about what you are raising this money for, so that people know exactly where this cash is going and they can decide for themselves if it’s worth giving money to.

1. Investment Funding

The first is investment funding. This means that when people decide to give money to your cause, they become part owner of whatever you are making or selling. They will get a percentage back from whatever profit you make off of this project.

2. Loan-Based Funding

The next is a loan based funding. This is something that you give back once your project is done and you are starting to make money off of it. This is a safe way to handle things if you are sure that what you are making is going to be successful.

3. Donating-Based Funding

Then you have strictly donation based. This means that people put money into it, and they expect nothing in return. They are simply putting their money in because they believe in you and what you are making. You do not have to give them anything in return, you just take the donation and add it to the funds of your project.

4. Reward Funding

Finally, you have reward funding. This is when you have perks that people can get when they fund your project. You can go to a bulk seller and have hats or shirts made, posters or signed postcards, or you can give them the product you are making once it’s finished and ready for the public.

Once you figure out which kind of funding you want to do, you start going through the settings. Select how much you need to raise for this dream to become a reality, put in how much you have saved up so far so people know that you are working towards the final goal as well, type in what the money will be used for exactly (actors, cameras, set prices, etc), and anything else that is relevant like the story behind this idea and why people should consider investing their money into this.

Beware Crowdfunding’s Downfalls:

crowdfunding downfalls

There are some downfalls and risks that you should also be aware of before you start up your campaign.

It might be hard to get backers, try introducing the project to a few people to see how they react and find out if they would be willing to help you start it up. You need to know how the public is going to react to this idea before you invest money into it.

If you have invested money into a project like this, it might be hard to get your money back, especially if you are an investor. You are talking a big risk putting money into something that doesn’t have a solid foundation yet. Most of the time, projects don’t reach their end goal. That doesn’t mean the project was abandoned, it just means that you have to put more money into it and it will take longer to pick up off the ground.

Even if your project does lift off the ground, you still aren’t in the clear. You still have to make money off of the project beyond the funding. The funding is just there to pay for the expenses of creating the product, you are in charge of pushing it out to people for them to buy and consume.

As long as you are prepared for these risks, you are prepared for anything. Find a team of supporters, and a group of people who are willing to help you on this project, and get to work on your campaign. There are millions of people out there who are willing to help people make their dreams come true, you just have to give them something to believe in.

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