How To Best Define The Meaning For Crowdfunding?

posted Nov 27, 2013, 12:59 PM by Unknown user

Crowdfunding Definition

Crowdfunding, interchangeably known as micropatronage, is basically a business financing concept of gathering a small amount of money (seed funds) from each person in a crowd of people with common interests over a specific project or business idea initiated by another person or entity. The patrons however are not confined to philanthropists and giant companies but also include common people with mediocre income as well.

Unlike microlending and peer-to-peer lending, crowdfunding carries the role of moderator between start-up business owners pitching for capital funding and a vast community of people looking for a good business plan to contribute to. In its most fundamental context, contribution does not equate to investment in that there are no rewards in monetary form.

Instead, the entrepreneurs may show their appreciation by offering memberships and product pre-orders for instance without any discharge of business equity.

How To Tap Into The Framework of Crowdfunding via Internet

Raising funds through crowdfunding are typically done via the Internet with crowdfunding sites moderating the process. As the Internet progresses up the technology hierarchy, start-up businesses gain the competitive edge in reaching out to huge potential customer base that may have different perception values towards their business plans. By tapping into the resource-rich social network to crowdfund businesses, new start-ups may be able to bring valuable views and revenue to their ventures.

Some of the advantages of adapting businesses to this framework are:

  1. Saving Time And Costs – Crowdfuding sites provide a platform for start-up businesses to pitch their business plans efficiently and hence all necessary facilities such as webpage, donation buttons, tracking widgets and media toolkits will be provided to business owners, thus cutting out the tedious work of building and customizing own websites to start crowdfunding. Besides that, proceeds are entirely handled by the crowdfunding sites before being released to the beneficiary.
  2. Free From Financial Restrictions – Smaller start-up businesses do not have to rely on banks and financial institutions to jump-start their ventures. By turning to crowdfunding, business owners are able to get funded without collaterals while preserving the business ownership.
  3. Free From Loan Commitments – While business loans expect timely repayments topped with interests, soliciting pledges from the public are on voluntary basis. Hence, issues of debts and insolvency can be dropped.
    Decentralized Power Of Business Financing – With the availability of public pledges for start-up businesses, entrepreneurs will have more freedom and flexibility in the matters of management and operations on their business.
  4. Securing Supporters – Besides getting the fund, your start-up business can also secure backers who have common interest in your venture.
  5. Sharing Your PR Effort – By gaining your supporters’ interests, this group of people is also likely to promote your business ideas to their individual network of friends and family. With their feedbacks and comments, your business plan can subsequently be revised to meet the public expectations, thus increasing its viability.
  6. Long-Lasting Relationships – The relationship forged from the virtual connection can be strengthen by constantly updating business progress and providing relevant information to open up the possibility of getting your fellow patrons to feel enthusiastic on the current and future plans.

Open Doors To Other Financial Options.

If your business proposal gains good positioning with supporters scale and fund size, the track record may be leveraged to attract alternative business financing options to chip in later.

The first step towards a successful crowdfunding campaign is to fully understand the definition of crowdfunding.

Once you understand the crowdfunding definition, you would begin to start attract wealth.

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