What is Crowdfunding?
The meaning of crowdfunding refers to a method of fundraising in which individuals or groups raise money for a project or venture by soliciting small contributions from a large number of people, typically via the internet. Crowdfunding can be used to fund a wide variety of projects, including creative projects, new businesses, and social causes.
There are several different types of crowdfunding, including:
Reward-based crowdfunding: This type of crowdfunding is typically used to fund creative projects such as films, music albums, and video games. Backers receive a reward, such as a copy of the finished product, in exchange for their contribution. Kickstarter and Indiegogo are popular platforms for reward-based crowdfunding.
Equity-based crowdfunding: This type of crowdfunding is used to raise capital for new businesses and startups. Backers receive an equity stake in the company in exchange for their investment. This means that they own a small percentage of the company and are entitled to a share of the profits. Websites such as Seedrs and Crowdfunder are popular for equity-based crowdfunding.
Debt-based crowdfunding: This type of crowdfunding allows people to lend money to a business or project, usually in exchange for a fixed rate of interest. The loans are usually unsecured and the borrowers will have to pay them back over a certain period. Websites such as Lending Club or Prosper are popular for debt-based crowdfunding.
Donation-based crowdfunding: As the name suggests, this type of crowdfunding is based on the principle of people donating money to a cause they believe in, without expecting any reward or return. Websites such as GoFundMe or JustGiving are popular for donation-based crowdfunding.
Crowdfunding has become a popular way for people to raise money for projects and ventures that they believe in, and has opened up new opportunities for individuals, businesses, and organizations to access funding that may not have been available through traditional channels.
Simplified Example
Crowdfunding is like a potluck dinner. Everyone brings a dish to the dinner table and in return, they get to enjoy a variety of dishes. In the same way, crowdfunding brings together a large group of people who are each willing to contribute a small amount of money to a larger project or cause. Together, all these individual donations add up to a significant amount that can make a real difference.
Who Invented Crowdfunding?
Michael Sullivan, an American entrepreneur and writer, is credited with coining the term "crowdfunding" in 2006. His initial blog post introducing the term, titled "Crowdfunding: A New Model for Financing Creativity," sparked a revolution in the way individuals and organizations raise funds. Inspired by the growing popularity of online communities and the power of collective action, Sullivan envisioned a world where groundbreaking ideas could be fueled by the support of a crowd.
Sullivan's introduction of the term "crowdfunding" coincided with the emergence of online platforms like Kickstarter and Indiegogo, providing a tangible infrastructure for his vision. These platforms facilitated the connection between creators and backers, enabling the realization of countless projects that would have struggled to find traditional funding. Sullivan's contribution to the crowdfunding movement has profoundly impacted the way individuals and organizations bring their ideas to life, democratizing access to capital and empowering a new era of innovation.
Examples
Kickstarter: Kickstarter is a popular crowdfunding platform that allows creators to launch campaigns to fund creative projects such as films, games, and music albums. Kickstarter campaigns typically offer backers various rewards in exchange for their contributions, such as early access to the project or limited-edition merchandise.
Indiegogo: Indiegogo is another crowdfunding platform that supports a wide range of projects, including creative endeavors, charitable causes, and innovative products. Indiegogo campaigns also offer backers various rewards for their contributions, and the platform provides tools for campaign creators to track their progress and communicate with their backers.
GoFundMe: GoFundMe is a popular crowdfunding platform for personal causes and charitable organizations. Users can create campaigns to raise funds for medical expenses, education, community projects, and more. GoFundMe campaigns typically rely on social media sharing and personal networks to reach a wide audience and generate support.
Related terms
Capital Fund: A capital fund is a pool of money that is collected and saved for a specific purpose, like buying a playground or investing in a business.
Venture Capital: Venture capital is an investment in a start-up or early stage business that involves high risk but also the potential for high rewards.