What is Crowdfunding?

You may have heard the term “crowdfunding” thrown around, but what exactly is it? In short, crowdfunding is the process of asking for small donations from the public in order to get enough startup capital to start your business.

Instead of the traditional method of obtaining funding through venture capitalists and angel investors, crowdfunding democratizes funding. Crowdfunding also lets you get your company off the ground faster, instead of having to wade through the bureaucracy of traditional funding.

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But instead of being at the mercy of venture capitalists and angel investors, you’re at the mercy of the public. You’ll have to convince the public why your product or service should exist, and how you plan to bring it to life.

Using crowdfunding platforms like Kickstarter and Indiegogo, you can make your pitch to the general public and interact with prospective customers. It’s on these platforms where you can set your original monetary goal, and subsequent goals with incentives for customers. For example, a musician can crowdfund his or her next album, and offer signed albums, t-shirts, and even an in-person meet up as rewards for fans who pay more.

Of course, crowdfunding has its pros and cons you should consider before you decide if it’s for you.

Header image credit: Rocío Lara via Flickr