How does crowdfunding work?

Posted June 4th, 2011 in Article by admin

Crowdfunding is the future of finance. The concept is simple: a large number of people (the crowd) fund small amounts of money to accumulate into an investment large enough to finance a project (or a start-up company).

Crowdfunding is based on the principle of crowdsourcing. An example of a crowdsourcing model is Wikipedia, an online encyclopedia that is completely written by users, containing over 3 million articles in English. A large number of people all put a little effort in reaching a big goal together.

Some famous crowdfunding initiatives are SellaBand and KIVA, but also president Obama used the power of the crowd to fund his election campaign in 2008 and raised 137 million dollar by using crowdfunding!

Hoe does crowdfunding work?

1. As a project owner, you want to tell everybody about the project you are setting up. If you want the people around you to invest in or donate to your project, you are ready to tell them how great your project is and convince them that they should invest or donate.

2. A story sticks when it is understandable and makes a connection with the listeners. Why is your project special and why should people contribute to it? What do the contributors get out of it?

3. To present your project, you will need to find a crowdfunding platform that fits your needs. There are lots of platforms out there, so there should be something for you as well! Do you want to do it without a platform, or start a platform yourself? That’s possible as well, but will be a time and/or money investment.

4. In essence, crowdfunding is about marketing; you tell everybody from your personal and business network about your project and hope they will also spread the word for you.

5. Relaxing and waiting is no option! After contacting your own network, try to get the attention of the (local) media, to spread the word even more.

The contact you get with a large group of potential investors, will mean more than money; you will build a strong relationship with ambassadors who can also help you in other ways to make your project a success.

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