What is Crowdfunding?

Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Crowd Funding”
Crowdfunding is a way of financing your business through donations of money from the public. This is commonly done through crowdfunding websites.
Generally, you post your business idea as a ‘campaign idea’ onto the website, with a description of your project. If people want to support your campaign, they can donate money to help you achieve your goal. These supporters are often called backers. On some websites, you need to set a monetary goal, and a time frame to reach this goal by.
To encourage people to support your campaign, you can offer incentives and rewards based on amount they donate. These incentives and rewards can be anything, such as merchandise, acknowledgement, discounts on future purchase of the product you are developing, etc.
For example, you can set that for every donation of $10, you will provide an acknowledgement to the donor on your product’s website, and for every donation of $20, you will reward a 5% discount on the purchase of your product once it is produced.
The advantages of crowdfunding over other sources of funding can include:
1. a customer base who are already committed to your product
2. the opportunity for you to interact directly with your customers, who are also your investors
3. the opportunity to get feedback from your customers while your product is being developed and tested
4. free word-of-mouth marketing for your product through your backers
5. instead of providing a share to investors, you still own your business in full
6. Lower commitment and risk -if you don’t reach your goal, you don’t have to commit).

By Barry Norman, Investors Trading Academy

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