In this contemporary world, crowdfunding solution has marked its vital presence in the society. This is among one of the best ways to invest money and to get funding for the growth of the business. Yes, those days are gone when business owners have to find the investors from door to door or to visit again and again to the banks for the approval of the loan, now time has changed and you can acquire the fund online by the crowdfunding platform.
Basically, crowdfunding is a method of the people or business to get the small amount of fund from the large number of people.
In this blog we want to tell you about the crowdfunding solution in depth.
What is Crowdfunding ?
The term ‘crowd’ refers to people, business or organization which provide fund raising the business and in return they will get the potential amount in the form of profit. On the other side, the word crowdfunding means the collective fund of the friends, family, customers, individual and investors via online.
The process to get the fund via online is very easy as a company or a person only has to post their project details, business or their idea on a crowdfunding website. It also saves time of the investor and businessman as they don’t have to search the service to the doorstep.
According to the survey, crowdfunding platform has been increased years by years, but in 2015, it hit the market at a high level and get the viewers attention. If we take ratio of 2012 – 2015, then in 2014 there are 16.2 billion US dollars was increased via crowdfunding.
Here is the report
Year Ratio Increased
In 2015, this year it hit the market and 2.56 billion U.S. dollars was raised through equity.
The value of funds increased through crowdfunding worldwide from 2014 to 2016 (in million U.S. Dollars)
Year Fund raised
2016 738. 89
Different Types of Crowdfunding
There are different types of crowdfunding, user can choose it according to their preference
1. Investment-based crowdfunding
2. Loan-based crowdfunding.
3. Donation-based crowdfunding
4. Reward-based crowdfunding.
Let’s know more about these types of funding:
1. Investment-based crowdfunding: It refers that user invest in a business and receive a stake in return.
2) Loan-based crowdfunding: In this user gives loan to the individuals or companies for the return of a set of interest rate. This funding is also known as peer to peer or peer to business lending.
3) Donation-based crowdfunding: This indicates the amount donate to a person or charity. In this, you will not get any financial return to the investors or contributors
4) Reward-based crowdfunding: The return of the amount as a reward, which is linked to the project or to support.
5) Equity-Based Crowdfunding: It opens an opportunity and allows the contributors to become a part owner of your company.
Working of the Crowdfunding
If you are in search for the crowdfunding website as the user wants to raise the fund. So as a user, you should search some essential points regarding it. First of all, you should see an overview of the project. You might have to register on the platform to know till the depth as you are investing, so you should know the platform till depth.
The individual or social enterprise should search for these points before investing in the platform:
Points to be searched before investing
How much fund the company wants to raise
Till now how much it has raised
How much shared in the business offered
For what purpose the money is utilized for?
The duration of the pitch has opened for
Till now the number of people who have already invested
What will then receive payment in return for the purpose of investing.
Risks Of Crowdfunding
Crowdfunding is totally a new concept and it is investing in a new business could be risky.
There are the main risk in the crowdfunding and they are listed below:
The platform itself can be boosted: You might lose the money after funding to the crowdfunding. The website can boost up itself.
Hard to sell: You may face this risk, it could be hard to sell. Normally, the shares are unlisted. It could be possible that you may not be able to sell them and you have to sell them in a big company
No guarantee of returns: The shares may be not increase and it may not be divided as a payment.
Business you involve must boost: Make it clear that the business you are in should be boosted in the future. There are many new business in the market and they might fall in the few years and if it falls so your money can also decrease.
How to reduce the risk
if there is risk, so it doesn’t mean that you will not deal with it as there is risk in everything.
Ways to reduce the risk
Invest money as you can afford, you should invest only 10% of any money you have available for investing in any one year. Before investing in crowdfunding, check the financial status and be sure that it is really authorized. Be aware of the donation and reward-based crowdfunding platforms. Keep the money in a separate account as crowdfunding service doesn’t have any protection.
Tax benefits of Crowdfunding
There are two main schemes which offer tax breaks
1. Enterprise Investment Scheme (EIS
2. Seed Enterprise Investment Scheme (SEIS).
So, in this blog we have mentioned all about crowdfunding, the essential things about it. If you are looking for the Crowd Funding Solution Similar Like Kickstarter so you should know all these things which are essential to know about the crowdfunding platform.