Understanding Crowdfunding: Modern Business Financing
Business Financing
Companies have various ways of being financed nowadays, whether through traditional banks or companies that offer credit via the internet. Crowdfunding is one of the primary methods for financing enterprises online.
What Is Crowdfunding?
Crowdfunding is a collective cooperation financing model in which freelancers and small-to-medium-sized enterprises (SMEs) form a network online to finance their efforts and support others' initiatives. This high-volume financing is wide-reaching due to its digital nature. However, it is not a continuous source of funding, which can make long-term planning difficult.
Types of Crowdfunding
Currently, there are five main types of crowdfunding:
- Rewards-based
- Donation-based
- Equity-based (shares)
- Loan-based
- Crowdsourcing
The Evolution of Crowdfunding
Crowdfunding was recognized in 2013 as a viable financing option. Since then, numerous creative, solidarity, and business projects have been successfully funded using this method.
How the Process Works
Generally, this type of financing follows these steps:
- Submission: The entrepreneur submits the project to a platform, including a description, the amount of money needed, the fundraising duration, and the proposed reward.
- Evaluation: The project is evaluated either by the community or by the platform itself.
- Publication: Once approved, the project is published for a set period (typically 30, 60, 90, or 120 days).
- Promotion: During this window, the project is promoted extensively.
- Decision: Once the deadline passes, it is determined whether the project is fully financed. Note that the specific operation may vary depending on the type of crowdfunding model used.
The Core Philosophy
According to Javier Martin, crowdfunding is based on a simple concept: "People with money who trust in people with ideas, working together to get a project off the ground."