What is Crowdfunding?

Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Crowdfunding”
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.
Crowdfunding has a long history with more than one root. Books have been crowdfunded for centuries: Authors and publishers would advertise book projects in remuneration or subscription schemes. The book would be written and published if enough subscribers signaled their readiness to buy the book once it was out. The subscription business model is not exactly crowdfunding since the actual flow of money will only begin with the arrival of the product. The list of subscribers has, on the other hand, the power to create the necessary confidence among investors that is needed to risk the publication.
War bonds are theoretically a form of crowdfunding military conflicts. London’s mercantile community saved the Bank of England in the 1730s when customers demanded their pounds to be converted into gold – they supported the currency until confidence in the pound was restored and thus crowdfunded their own money.

By Barry Norman, Investors Trading Academy – ITA

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