Imagine effortlessly raising the capital you need to bring your dream project to life, all from the comfort of your own home. Welcome to the world of crowdfunding, the internet-powered funding revolution that’s transforming the way innovative ideas take flight.
Explore this powerful tool and unlock its potential to supercharge your project’s growth and success.
What is crowdfunding?
Crowdfunding is a strategy that involves obtaining funds online to finance a project through the contribution of many investors. The advantage of this method over other funding mechanisms is that it allows you to raise a lot of resources without risking a significant amount of money per investor.
It should be noted that with this type of funding, investments do not always have to be paid, but people will only contribute if there is an interest. Later we will see that some projects seek to convince investors by offering them some benefit, moral, economic, or social reward. For this reason, crowdfunding is not the same as a donation.
There are several online platforms where anyone can post their product prototype or idea with photos, descriptions, and videos to convince potential backers to help fund it. If you want to learn more about crowdfunding app development, read the related article on this topic.
How does crowdfunding work?
Although it may sound complicated, the idea of crowdfunding is quite simple: many people decide to support you financially so that you can create your project. But how do you convince them that your idea is worth it?
First, you must be very clear about what you will offer the market, why it is іmрortаnt to develop your product, and how you will carry out your development plan. Once you have a perfectly designed strategy, it’s time to share it with the public.
A word-of-mouth strategy or traditional communication tools is unlikely to help you reach the large number of stakeholders who invest in you. For this reason, you should rely on crowdfunding platforms and create a profile where you communicate about your project. There, you must specify how much money you need to raise, what you will use the resources for, and what benefits investors will receive (only if you consider returning them).
Communicating your ideas with passion, clarity, and determination would be best. Otherwise, you will not convince anyone. Adding drawings, work plans, photos, videos, prototypes, or a rendered product image is beneficial. It is essential to ensure that potential investors know where they will invest their funds.
Those who decide to cooperate will make a transfer or deposit to your account. When the requested amount is reached, the crowdfunding platform will provide you with the resources to implement your project (after deducting the commission for using its funding system). Crowdfunding is all about getting a few backers who will push you toward achieving your goals.
Types of crowdfunding
Next, we will mention the different types of crowdfunding. Check them out to find out which strategy is best for you.
1. Crowdfunding Award
This is perhaps the most popular type of crowdfunding. You can understand what it is about from the name: you have to offer something in return so that the public decides to invest in your product. There may be different types of rewards. Suppose you create three levels (amounts) of the contribution; in this case, you can set three methods of remuneration:
Tier 1 investors can get a sample of your product and a certificate of appreciation;
Deck 2 investors of the second level will be able to receive a special edition and additional gifts;
Tier 3 investors can get a monthly membership to receive products or benefits.
The more attractive your rewards are, the more visitors will join!
2. Investment crowdfunding
In this type of crowdfunding, backers do not expect any physical product or reward in return, but this does not mean they will give you their money: they invest in you to receive a share of the profits later. Imagine that you are selling shares of your product.
In this type of equity crowdfunding, you have to convince investors that your project has a future and will bring them profit. Naturally, in these cases, investors will invest money only if your project seems profitable to them and they are ready to provide you with more resources.
3. Solidarity crowdfunding
While this crowdfunding can fund a project, it is most commonly used to support specific causes. For example, if there is a disaster in the country, many patrons can provide financial support to help the vulnerable population. It is important to note that in these cases, there is moral interest in the project, so those seeking this type of funding may appeal to taxpayers’ emotions.
Crowdfunding is an excellent opportunity to get funding at the initial stages and develop your product. If you have a great idea or plan to make it all a reality, but you do not have enough funds, then use crowdfunding.