Definition of Crowdfunding – What it is, Meaning and Concept

CrowdfundingThe term crowdfunding It is not part of the dictionary that elaborates the Royal Spanish Academy (RAE). The notion refers to a financing mechanism which consists of the contribution of small amounts of money by many people.

Crowdfunding, therefore, is also known as crowdfunding. It is a crowdfunding, where an entrepreneur receives limited support (in financial terms) from numerous investors.

Crowdfunding is generally developed through Internet. Those who are interested in receiving financing publicize their project, setting a goal to be achieved and requesting support. Let’s suppose that a musician needs 2000 pesos to record an album. Through crowdfunding, twenty of his followers could contribute 100 pesos each and thus raise the necessary money. The musician, as a reward, agrees to give an autographed record to each investor and to give a private concert for all of them.

Those who contribute money through crowdfunding they usually do it in exchange for some kind of prize or benefit, although it can also be a solidarity decision to support a cause. With this methodology, it is not usual for the investor to seek to recover the money with interests.

It is possible to list several advantages of crowdfunding compared to others systems financing. The most notorious is that the contribution does not fall on a single person, but on many, a particularity that allows reducing the amount of money to be disbursed. Another point in favor is that it makes it possible to access financing for projects that, for various reasons, cannot enter the traditional financial system (banks).

In most cases, the person or company that files a draft In a crowdfunding platform, it offers its potential investors a well-detailed list of the benefits or rewards that they will obtain in exchange for the various possible amounts. For example, in the case of video game developers, it is common that from the smallest investments one of the rewards is a digital copy of the product, generally at a considerably lower price than it will have on the market once it is launched.

CrowdfundingAs the amount of money offered by investors increases, the rewards of a crowdfunding campaign can become very interesting. One of the most common practices is to invite the people who have contributed the most to visit the company premises in a private meeting.

Crowdfunding not only enables people with great ideas to fulfill their dreams without financial meansBut it also opens the door to massive collaborations between creators and investors. Returning to the case of video games, the type of project that is most successful on these platforms, it is not uncommon for developers to open forums where investors can contribute their own ideas and evaluate the product while it is in full swing. developing.

This brings us to one of the biggest risks of crowdfunding: the loss of control about the project. Since anyone can start a campaign of this type, regardless of whether they have previous experience in the performance of their profession or in creating a similar proposal, it is very common that soon after the fundraising process is completed the structure begins to decay and the future becomes bleak.

When a Bell As crowdfunding starts off well, with the support of many people and a favorable rate of collection, it often happens that the organizers get too excited and start making more and more promises, many of which they will never be able to fulfill. In some cases, the confusion leads to radical changes in the project, which leave a significant portion of the investors unrewarded.

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