Crowd Financing

Crowd Financing (or sometimes referred to as crowdfunding) is an approach to raising the capital required for a new project or enterprise by appealing to large numbers of ordinary people for small donations. While this approach is common in the sphere of charity, it is receiving renewed attention from entrepreneurs now that social media and online communities make it possible to reach out to a group of potentially interested supporters at very low cost.

Definition:
Crowd financing describes the collective cooperation, attention, and trust by people who network and pool their money together. This collaboration of investments is usually via the Internet, in order to support efforts initiated by other people or organizations. This occurs for many different purposes, including disaster relief, small businesses, citizen journalism, artists seeking support from fans, and political campaigns.  Crowdfunding replaces the more traditional route of financing as it consists of pulling together smaller amounts of donated money, rather than one large loan with a high interest rate. With the help of social media, this funding process has become increasingly popular. 
 
Pro:
Crowdfunding takes advantage of the social nature of the targeted crowd. This not only allows you to solicit donations, but also permits these followers to spread the word of your business and potential need for growth (free marketing). When utilizing crowdfunding, your business needs to have a solid set of goals and principles. In doing this, people will also be more willing to donate, therefore the business must strive to achieve these goals. Failing to achieve these goals will cause the investors to lose interest and support, thereby compromising the validity of the company. The validity of the company is extremely important to retain followers, so it is imperative that your company accomplish its goals and maintain its values. Through the amount of supporters, you can also measure how responsive your future clientele will be to your business and get an idea of initial demand.
 
Con:
Crowdfunding is not a solution for every business and is not considered to be a sustainable source of revenue. It takes diligent effort and is based on having a pre-existing audience or having the ability to gain a following in a short amount of time. Also, because it deals with the collection of money and soliciting investments, you have to be extremely careful not to violate any existing laws or regulations.
 
 
 

 

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