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Growing popularity of crowdfunding

August 10, 2020

You have certainly come across a crowdfunding campaign. This form of financing is extremely popular among start-ups, but companies and individuals are also increasingly finding ways to find online crowdfunding platforms. But what is crowdfunding really? And what are the advantages of this way of financing? Crowdfunding is nothing more than bringing in money from a large number of investors. Because many different investors donate or lend a relatively small amount, they are - in general - willing to take greater risks. This makes crowdfunding an ideal way to get a new business off the ground or to develop and market a new product.

Different forms of crowdfunding

As a self-employed person, there are various options for obtaining money. One is to start an online crowdfunding campaign. By means of an online campaign via a crowdfunding platform and social media, you make your plans known to the crowd - the general public . When your campaign is catching on and investors are willing to invest in your company or project, there are several options on how to do it. The table shows the different forms of crowdfunding and which type of campaign suits them best.

  Donation Loan Reward Shares
What is it? Investors donate money to charity or new business. They do this out of charity or because they see potential in the company. Investors lend money to the entrepreneur. The borrowed money is repaid and interest is paid on it. Investors donate money and receive a non-financial reward in return, such as the product that the entrepreneur will develop. Investors finance the company and receive shares in return. They expect a dividend payment and an appreciation of the shares.
For whom? Charities, citizen initiatives and social projects. Mainly for (existing) entrepreneurs. Starting entrepreneurs with innovative ideas. Start-ups and companies in the growth phase.

What are the benefits of crowdfunding?

It is not for nothing that this method of financing has grown incredibly fast in recent years. There are a number of important advantages for the entrepreneurs. In contrast to a traditional form of financing, an entrepreneur can determine the conditions and rates for a crowdfunding campaign. Moreover, you are not (only) dependent on banks by means of crowdfunding. In addition, the crowdfunding campaign and the accompanying social media can be used as a marketing tool . Initially, the company or project is made known to the general public in order to arrange the financing, but at the same time brand awareness is built up. After all, the many investors can develop into customers and / or ambassadors of the company. As a result, crowdfunding can also become part of a marketing strategy. Setting up a crowdfunding campaign, for example, requires extensive market research. Moreover, crowdfunding fits perfectly with the changing needs of people and society.

The cons of crowdfunding

Despite the fact that crowdfunding is increasingly used to fill a credit need, there are also a number of drawbacks. For example, the financing is only complete when the entire target amount has been reached by the crowd. In addition, a claim can be made on your private assets when you are faced with bankruptcy. Crowdfunding can be used as a marketing tool, but this requires a very time-consuming campaign . Before you can put your campaign online, it takes a comprehensive market analysis and a well thought out plan. In addition, you should keep in mind that the more investors (or: shareholders) there are, the more opinions and people there are who want to have something to say. This can create more complexity around decisions after the crowdfunding campaign. Moreover, not every idea or project is suitable for a crowdfunding campaign. For example, it has turned out that services are less suitable for this form of financing.


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