Crowdfunding and Crowdfunding: Innovative, Young Business Phenomena

Today, this process is gaining fair popularity, as it is an excellent tool that makes it possible to recognize and realize the material benefits that people need. Let"s find out what crowdfunding is, and at the same time get acquainted with the concept of crowdinvesting, which is close to it, since these are two phenomena that are very close in meaning.

Crowdfunding - what is it?

The literal translation of the term "crowdfunding" means "group financing" or it can be interpreted as "funding by a group of people." It would be more correct to adapt this phrase to the Russian understanding and designate it as “public funding”. It is in this form of translation that the whole meaning of the phenomenon under consideration is hidden.

Simply put, crowdfunding is the collection of a certain amount of money on the Internet to finance some interesting, useful or charitable idea. Everything happens voluntarily and everyone contributes the amount that he considers sufficient for his participation in the presented project.

The initiative may be non-commercial in nature or may be aimed at the development of a certain business.

As for terminology, two more specific words need to be understood:

• recipients - a group of people (one person) trying to raise money for the implementation of some idea;
• donors are, respectively, people who invest (give) money.

Basically, everything here is voluntary. No one demands to contribute their hard-earned money to an enterprise that can go bankrupt at all, or to some kind of donation. That is, no laws are violated here.

Today, the Internet provides a great incentive for the development of such a phenomenon as crowdfunding. There are large platforms (social networks, forums, portals, etc.) where it is easy to find like-minded people.

In addition, there are now many specialized Internet resources on the Web that deal exclusively with crowdfunding. The most famous is the Kickstarter platform, the more modest resource Crowdrys and the largest Russian project Planet. These are just three sites. In fact, there are more of them.

Crowdfunding can have completely different goals. In the first place are the ideas of young businessmen who do not want to take a loan, but they do not have enough money to develop some business (startup). It should be noted that many people succeed in realizing their own ideas thanks to this method of fundraising.

Nuance! Statistically, a very well presented idea with an excellent perspective raises money very quickly.

The main thing is that the proposal should be attractive and tempting for the "donors"!

Most often, crowdfunding raises funds for the following purposes:

• treatment of people or animals;
• various operations;
• charity;
• investment in a growing business;
• subsidizing political events;
• support for certain commercial projects;
• sponsoring musicians, travelers, athletes, scientists, etc.;
• improvement of territories.

Crowdinvesting as a form of crowdfunding

Of course, the money collected through crowdfunding, which is intended for business or start-ups, is not given to the recipient free of charge. People who give some of their own money to a business want some return. This phenomenon is already called crowdinvesting.

Crowdinvesting should be perceived as a variety of crowdfunding or as its subspecies. The main difference between crowdinvesting is the collection of money for the development of a promising start-up (business). Here, each investor receives either a reward in the future, or a present immediately after depositing the amount.

Three main types of crowdfunding

There are three types of crowdfunding:

1. With an obligation (Debt crowdfunding) - the newest type of crowdfunding, in which a person (investor) invests a sum of money in any business, subject to its subsequent return or receipt of a share in the organized business. For example, you invested 1,200 rubles in a startup. Then there can be two options (numbers are approximate):

• in a year, the owner of the company must return 2,400 rubles;
• immediately you should receive, say, 5% of the shares of the company being organized.

2. With equal rights and obligations (Equity crowdfunding) - this is crowdfunding, where the recipient sells part of his business to the donor, without any obligations. It is also possible here to rent a part of the business for a long time, during which the donor receives his dividends. In any case, the investor is in a good plus.

3. With reward (Reward crowdfunding) - the most popular type of crowdfunding, where the donor simply invests a sum of money in the idea of the recipient, who in return gives some valuable gifts or prizes. That is, there are no obligations. The investor gave (donated) the money, received a gift and said goodbye to the young businessman.

Important! Very often there is a condition here that is set by the crowdfunding site - if the required amount for organizing the case is not collected or the recipient does not fulfill certain conditions, then all the money is returned to all donors!

Different options can be combined or modified somewhat, however, the essence always remains the same.

Features of crowdfunding

For a serious, new phenomenon called crowdfunding, there are several important distinguishing features that distinguish it from other investment business projects. The signs are:

1. Strict observance of pre-agreed conditions and rules. Usually, the arbiter in this situation is the Internet portal engaged in such activities. The recipient must clearly fulfill all obligations to donors, in accordance with the contract.

2. Concrete idea. For side, vague purposes, amounts are never collected. To raise funds, the recipient must present a really understandable thought and a clear plan of action. People have to believe in order to have a desire to bring money. If the idea is commercial, then they hope to generate income.

3. Limited (time limit) - the entire fundraising event must be scheduled for a specific time period. This allows you to understand the interests of people and their interest in any business.

4. Venture (investment with risk) - when investing their own money in a project, the donor does not receive 100% guarantees of the success of the organized enterprise. Investments may not be returned, because there are a lot of risks in business.

Attention! Money donated to any social initiatives (charity, treatment, landscaping, etc.) does not imply a return on investment at all. You need to remember this!

5. Orientation (specialization) - modern crowdfunding is characterized by raising money for a variety of projects, both non-commercial and commercial.

6. The result as the main goal. Any organization or every person who collects money through crowdfunding must certainly report on the work done and the results achieved. All collected funds must be spent only on the declared project. If there is no such report or the person is a fraudster, then the money is returned in various ways to each donor.

Functioning of crowdfunding platforms

An interesting feature that crowdfunding is famous for is its availability for any person. Even in some cases, the site where an interesting project was placed will not take commissions from the funds raised. Although the opposite situation is more common - the site will take up to 7% of the collected amount, however, on condition that the entire amount for the implementation of the declared project was collected on time.

When for some reason it is impossible to collect the necessary investments, the platform does not require any interest, which is very profitable. It turns out a good, free option for recipients and donors. You can try to implement social projects, but in case of a shortage of money, there will be no losses.

If the required amount of money is collected, then the platform where the recipient submitted his idea will request some reward for his services and for all invested investors. This is what happens most often.

When the project is large and money has been collected for it, it would be advisable for all donors to offer a small share in the organized enterprise in the form of shares or a concluded agreement (share ownership).

Conclusion

Such a phenomenon as crowdfunding is a serious direction in the field of business. It is actively developing. Usually, this process is called crowd funding, which is partly true. Funds raised are most often given by ordinary people who want to participate in some interesting project or implement a useful idea.

Crowdfunding demonstrates its own demand among people from different countries, however, in Russia it is just beginning to develop. There is obvious potential. This system will achieve good development in our country and will also effectively help the development of small and medium businesses.