Crowdfunding Meaning & Definition

Crowdfunding is the process of raising the capital needed for a project from a crowd – a large number of people-. Each person giving relatively small amounts of money. Crowdfunding is typically done these days via the Internet.

Historically, books were crowdfunded. Books would be written and published if enough signaled their readiness to buy the book once it was out.
War bonds, were also considered a form of crowdfunding.

Internet wise, there is at least one crowdfunding platform in almost every country. The 3 main global crowdfunding platforms are Indiegogo (2008), Kickstarter (2009), GoFundMe (2010).

Types of Crowdfunding:

1- Donation based crowdfunding:

Donors come together around a common objective, to help charitable causes. Sometimes to help fund services and programs to combat a variety of issues. Funds are often raised for religious, social, environmental, or other purposes.There is no reward for donating;

2- Reward based crowdfunding:

Reward-based crowdfunding has been used to fund a wide range of projects, including games, toys, gadgets, websites, music, movies, comics … Funding does not rely on location, even-though location plays a big role. This type of crowdfunding is distributed unevenly, with a few projects accounting for the majority of overall funding (power-law). Funding accelerates as a project nears its goal, or shows traction, as backers are more certain the project will see the light. Research shows that friends and family account the majority of early backers.

3- Equity based crowdfunding:

Equity crowdfunding allows investors to raise capital or often a seed round for their startup or small businesses in return for equity.
The campaign creator must create equity through the registration of a company. And investors must often be accredited investors not common people (there might be some exceptions in some countries).
Investors give money to a business in return of a small ownership of that business. If the business succeeds, and reaches a liquidity event, the investor can sell part or all of their portion of ownership in the company. Equity crowdfunding can be like raising capital from angel investors, but reduces the hassle of pitching, and may increase exposure.

4- ICO and ITO :

Initial token offering or initial coin offering: Blockchain based, the campaign creator, creates a token and sell it, in exchange of other cryptocurrencies.

5- Crowdlending:

Debt-based crowdfunding, (also known as “peer-to-peer crowdfunding”, “P2P crowdfunding”, “marketplace lending”).
Borrowers apply online, their application is reviewed and verified, a credit risk and interest rate is assigned.
Investors buy securities in a fund that makes the loans to individual borrowers or bundles of borrowers, and make money from interest on the unsecured loans;

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Abdallah Alaili

I'm a serial entrepreneur (mostly tech) and micro-investor (tiny), this is a blog to learn from other entrepreneurs and spread the wisdom to many more. You can find me on: Instagram - Twitter - Linkedin - more about me